In keeping with the age-old, time-honored tradition that we’ve been observing for…at least three years now, it’s time to take a look at this year’s Rock and Roll Hall of Fame inductees and see what sort of retirement planning lessons we can learn from them.
We’ll start with 2018 inductee Bon Jovi.
As a band, these guys have always had a very unique relationship. Jon Bon Jovi is the only member who’s actually signed to the record label; the other members are considered his employees.
This is unusual in the recording industry, especially for a group that includes someone as well-known and influential as Richie Sambora. Sambora, after all, has also released three of his own solo albums, he was married to Heather Locklear for 13 years, and he’s been to rehab twice. So he’s a legit rocker.
But while most bands tend to make business decisions as a unit, somewhere along the way, Jon realized that this was a bad model.
The “one guy in charge” model has worked well for the group. The band has stayed remarkably stable since it was founded in 1983. They replaced their bass player in 1994, and then Sambora finally left in 2013. But other than that, there’s been relatively little drama in the group’s 35-year history.
The same should be true of your financial life. You’re the leader, everyone in your orbit is there to support you.
“But wait a minute,” you say. “Of course I’m in charge of my own financial life. Who else could possibly be considered to be in charge?”
Well, let’s take a look at some situations where you actually give up your position of leadership and let the band make decisions for you…
1) Too Much Debt
When you saddle yourself with debt, you’re giving up control of how you’ll spend a portion of your income.
Let’s suppose you have an annual salary of $120,000. If, before each month even begins, you know that you’re going to owe $1500 on your mortgage, $475 in car payments, $250 toward a home equity line for that kitchen remodel, and $500 to credit card payments, you’ve already given up more than 27% of your voting rights on how you’ll spend your money that month.
2) Tax Returns
Too many people allow someone else to prepare their taxes for them and then completely divorce themselves from the process.
It’s fine (and usually recommended) for you to have help with your taxes. But relinquishing complete control of the decision-making process is dangerous.
It’s one thing if you have an actual CPA preparing your taxes for you. Sure, there might be some concepts that you don’t completely understand, so you cede to their advice. But most good CPAs make it a consultative process where they’re walking you through the things you need to understand.
The area where I see people get in trouble is with services like H&R Block or Jackson Hewitt. All too often, it seems that their primary goal is not to be as accurate as possible, but instead to get you the biggest refund (or owe the smallest amount) possible.
And if that’s the primary goal, it sometimes means sacrificing some accuracy, or legality, along the way. I can’t tell you how many people I’ve seen who have ended up with a mess on their hands because they simply turned their taxes over to a service like this and then assumed that everything would be handled perfectly.
It’s still your tax return, and you’re still the one the IRS holds responsible. Don’t give up your position of leadership here.
3) Investment Decisions
Look, nobody expects you to be an expert on the investment world if you don’t wallow around in it every day. But at the same time, you need to take enough ownership of your situation to know if your general investment approach makes sense.
I’ve seen too many people who just assume that their advisor or broker is paying more attention to the details than he or she actually is.
The majority of advisors out there are primarily focused on growth and accumulation. As you get closer to retirement, your priorities need to shift to preservation and income. But unless you’re explicitly having that conversation with your advisor, don’t assume that those adjustments are being made. It’s more likely that they still have you in accumulation mode because you haven’t told them otherwise.
And yes, if you’re wondering, it should probably be considered malpractice for your advisor to not be proactively having those conversations with you. But that’s a soapbox for another day.
So proceed as if this is your band, take the bull by the horns, and be sure you’re making the best decisions you can make.