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Olympic swimmer, Alex Walsh, learned the hard way what happens when we don’t follow through all the way to the end. On August 3, 2024, while swimming the women’s 200-meter medley in the Paris Olympics, Alex approached the wall needing to transition from the back stroke to the breaststroke. To make this transition the swimmer must turn from swimming on their back to swimming on their stomach. The rules state the swimmer cannot turn their horizontal body past vertical before they touch the wall, completing the back stroke leg of the race on their back.
Alex finished the final heat in third and was in the bronze medal position. A few seconds after the race ended, the race officials disqualified her for turning too soon out of the back stroke. She had worked so hard to get to the final 200-meter race at the Olympics and near the end of that final race she didn’t follow through, resulting in losing her medal.
On June 7, 2024, at the European Athletics Championships, the Spanish race walker Laura Garcia-Caro began celebrating her bronze medal victory before she crossed the finish line and didn’t notice the race walker coming up behind her. Six feet from the finish line Laura was passed and lost her medal.
Although these athletes are some of the best in the world, they too can make silly mistakes as the finish line approaches.
I frequently see a similar mishap in personal finance. Someone who has been diligently saving their whole life, making wise investments, makes a silly mistake just before the finish line, costing them a fortune. This mistake could require they work beyond their expected retirement date. Please guard against making the following last minute blunders that can tank your wealth in the home stretch.
Getting Greedy
“What do I need to do if I get a late start investing?” is a very dangerous question. Smart investing concepts don’t change based on when we start. Although an earlier start is always best, those who haven’t begun investing can’t start earlier than today, so now is always the best time to start investing. When we begin investing, we must start with a good plan and stick to the plan.
As we near our targeted retirement age, and find we don’t have as much money saved as we anticipated, the thoughts of changing the plan to “speed up” our timeline begin to creep in. This is where people can go astray and end up losing money in the home stretch.
“My friend made a killing in bitcoin. Should I put all my money in bitcoin so I can catch up?”
“I got a hot stock tip on a new and promising company. I think I will purchase some stock from this promising company, and if I hit a homerun, I will be back on track to retire when I want.”
As retirement approaches, we must avoid the temptation to “speed up returns” by taking more risk. This is not the time to get risky. Changing the plan can easily take you from 80% of your desired account balance to 40%. Jumping your risk level puts you into a situation where you could easily lose half of your hard-earned savings.
Early in my investing journey, I took a few unnecessary and unwise risks. None of them panned out. One of them dropped my eventual retirement nest egg by seven figures. Lucky for me I made my mistakes early. I learned from my mistakes and fortunately had time to recover. What if I had made those mistakes in the last five years before I wanted to retire? It would have cost me dearly and I would have had to push back my retirement date or significantly cut back on my lifestyle.
Slow, steady, boring, and safe will win the retirement race. Fast and greedy could blow the entire game. In bicycle racing they say you will not win the race taking risks on the downhill section, but you could lose the race with a bad crash.
Don’t risk your investments to catch up. By taking these risks you increase the likelihood of falling farther behind. Looking back, you will wish you had never made that move.
Using your retirement plan as a piggy bank
Borrowing from your retirement plan is almost always the wrong choice. For a lot of people, the only account they have with a substantial balance is their retirement plan. So, when they get the notion of doing something expensive, like buying an apartment complex or remodeling their home, they start eyeing their retirement plan as the source of the funds.
It seems like an easy way to get quick cash. But borrowing from your retirement plan can cause trouble.
I have seen this piggy bank used to borrow money to help a relative start a business. Since the relative did not have enough money saved and could not borrow the money from a bank, he turned to his relative for a helping hand. If a bank won’t loan him money, you should take that as a clue and follow suit. My friend’s only source to scrape together enough money was to borrow from his retirement plan. He wanted to help, so he did. What if that business fails and the loan cannot be repaid? Even if your friend would never do that to you, it still happens due to situations beyond their control.
What if you lose or need to change jobs. If you borrow from your retirement plan and then leave the employer, the loan against your 401(k) is due in full by the time you file your next tax return. If you do not repay it on time, it will be counted as an early distribution, and you will owe taxes and penalties on the outstanding amount.
Once you start borrowing from your retirement plan, it becomes easier and easier to obtain funds from your retirement plan in the future. When you get into the habit of borrowing from your retirement plan you will end up with less money upon retirement than anticipated.
When I oversaw a company retirement plan, many people who left that company for another job did not roll their retirement funds over to a new retirement account, they took all the money they so diligently saved for their retirement; 40% went to taxes and the rest was used to pay for life expenses while they were between jobs. In this scenario, no matter how good they had been about saving for retirement, it all disappeared by making the mistake of not sticking to their retirement savings plan. If they did not have a retirement plan, they would have found another way to get by between jobs. That other way is what they should use.
Never use your retirement plan as a piggy bank prior to retirement.
But the market is at an all-time high
This should never be a phrase that crosses your lips. Since the market has been growing steadily for the last century, the market is always reaching a new all-time high. If it is steadily at an all-time high, as expected, and you let that stop you from investing, then you will never put your money into an investment.
Better to think about a steadily growing market as currently being at the lowest price it will ever be. With this mentality, you feel the need to buy right now.
Many people spend their life diligently putting money into their retirement plan, and as they near retirement they read the headlines “the market has reached a new all-time high.” After reading this headline they panic and take all their money out of the market “before it collapses.” All their future gains are lost as the market continues its expected steady rise.
The problem is you will likely be retired for two-to-three decades and therefore need your money to remain in the market for the rest of your life. Pulling it out at the end of your working years is a disastrous move.
Stop looking at the headlines and leave your money alone. It’s working hard for you so let it do its job.
Keep your investment plan going until you die. Do not start doing crazy things just before you reach retirement. Don’t blow it in the home stretch.
I was watching a high school football game in which the team lost their only quarterback to an injury. They came up with a great alternative plan. The center hiked the ball directly to their star running back and he would either run right or left. They averaged six yards a carry as they rapidly marched down the field.
As they reached the ten-yard line, with a touchdown in sight, the coach changed plans. Abandoning a sure touchdown in the next two plays, he had the running back pass the ball. Unfortunately, the running back couldn’t pass, and they didn’t score.
All the yards they won marching down the length of the field were for naught when the coach changed the plan as they approached the finish line.
Don’t let this happen to your retirement planning. Set your plan and use it all the way to the finish line. Don’t get close and then try to get fancy. Don’t lose your retirement medal because you turned from your backstroke too soon. Follow through to the end and win your medal.
