Are You a Retirement Money Idiot?

Okay, to start titles of blogs are usually designed to get you to look at the article. But not this one. I believe that much of our aging population are retirement money idiots and here’s why.

The other day I asked someone who was retired how they were investing their money. (I often do this to learn more about investing even though most people don’t want to talk about money). They told me that they didn’t know how their money was invested, that they went to high school with the expert, and he had a couple of beautiful houses on the ocean and drove a great car. I asked if they had watched the Madoff movie or ever heard of Bernie.

I also know that many people focus and rely on their company or government pensions. My dad did that even though the rent from one apartment he had, eventually produced more income than his 30-year-old pension. So here are the signs that you may be a Retirement Money Idiot. Please have the courage to continue reading.

1. You have a pension, so you don’t care about retirement money. Let’s take teachers for example in Ontario Canada. If you are a retired teacher, or work as a teacher, you must ask for complete transparency into how your retirement funds are being invested. If you blindly contribute without digging for transparency in any pension you are a retirement money idiot. The Ontario Teachers Pension Plan invested in the FTX fraud platform. Ok it was just 95 million dollars, but should that not be a sign that other, larger dice rolling is going on?

2. You buy mutual funds recommended by your local bank. If you do this and can’t say right now how they invest, what is the up front and back-end costs and annual management fee costs then you are a Retirement Money Idiot. Most local bank salespeople that sell you mutual funds are money idiots of a different stature.

3. You buy GIC’s or Bonds and think your money is safe. With GIC’s the main threat is inflation and taxes. If you have accounted for that and do the math each time you buy a GIC that is great. You understand the risk but buy them anyway. If you are getting 5% on a GIC today, you are in fact losing about 6% per year of buying power on your purchase. That is ok if you know that. If you haven’t taken the time to figure it out and just keep blindly buying GIC’s you are a retirement money idiot.

4. You have a stock market account, and you play the markets buying and selling stocks monthly. Buying stocks is investing in companies and owning a part of those companies. It takes a lot of work to know and invest in the right companies. Unless you want to spend the time doing that you shouldn’t be a stock investor.

5. You don’t invest in retirement because you have a house, and you call that an investment. A house that you live in is not an investment. If you believe that you are a Retirement Money Idiot.

6. You don’t invest in retirement because you think someone else will take care of you. The government through a pension plan or a rich relative will make sure you are ok. Well common sense alone says that if you believe this you truly are a Retirement Money Idiot.

7. If you are between the ages of 25-45 your likely are a Retirement Money Idiot. I was. You are forgetting the magic of compounding your investment gains. If you invest $500 per month for 25 years and receive a return of 8% you would end up with $548,000. Most importantly if you did that within a Canadian TFSA, all of that money would be tax free and you could take it out at any time. Put $750/month away and you have $823,307 in 25 years. I didn’t do that and it took a long time and a lot of risk and pain to catch up. So if you read this and are young start today. Get a second job if you have to. Put money away for 25 years or more. The magic of compounding will help you reach your goals.

If you have read to this point in this blog, I take it all back. Even if you are making one or all the mistakes I describe, there is hope. You might change something. If you are upset with a point or two, I’ve made and don’t want to do anything, I worry about you. Head out and pick up the last of the Kleenex out there because as a Retirement Money Idiot you will be needing it soon. Very soon.

To listen to my weekly podcast Invest Like a Honeybee go to iTunes or wherever you get your podcasts. This week “The Psychology of Mortgage Rates-Be Aware or It will Kill Your Investments”.