It’s generally understood in the world of finance that the typical DIY investor averages only 3% per year on their investments. This is a terrible problem for two reasons. First, it means the average investor isn’t getting ahead of inflation. Second, it means investors aren’t benefitting from even the simplest investment strategies. So why are investors not taking advantage of even simple strategies to get ahead of inflation? Unfortunately, it’s also well known in the financial world that investors are their own worst enemies. The average investor makes a lot of mistakes over the course of their life, many of which can’t be undone.
Interestingly, male and female investors tend to make different mistakes. While there’s plenty to be said about the unique mistakes women make, this blog will focus on the mistakes that I see men make. Naturally, there are unlimited mistakes a man can make with his money. The ones I want to focus on here are the doozies they’re unaware of until it’s too late. The top 5 retirement mistakes that men don’t know they’re making are:
- They believe Social Security will run out.
- They reject proven simplicity.
- They believe they’re bulletproof.
- They fail to prepare for their own passing.
- They don’t take advice.
They Believe the Lie That Social Security Will Run Out
Women have, what popular financial commentator Dave Ramsey calls, a “security gland” and, after years of financial advising, I’ve witnessed the security gland spasms firsthand. When it comes to investing, women are much more focused on the predictability and long-term benefits of a given strategy, while men tend to be waaay more concerned with how much of a return they’ll get. This can lead men to favor a retirement strategy that potentially gives them more now, but may put their household at risk in the future. I’ve seen this play out time and time again when it comes to making decisions about Social Security.
To be fair, women make mistakes with social security too, but I’ve noticed that women are more likely to listen when I explain that if they take their benefit early and live a long time, they’ll have much less coming in during their late retirement years. There’s that security gland at work!
In order to believe the lie that the Social Security Administration will run out of money, you have to assume that Congress will do nothing to keep Social Security going. Seriously, nothing at all. While I can appreciate people’s concerns about Federal spending, Congress has options to keep social security going. Here are just a couple of ideas I’ve come across in my reading: The Social Security Administration could delay benefits for future generations. They’ve already pushed what’s known as full retirement age back once in my lifetime so it’s not unreasonable to think they might do it again. Congress could water down the benefit for future generations by decreasing the payout or eliminating inflation adjustments. They could also increase the Federal Payroll Tax to cover future benefits. Regardless of what Congress decides to do to keep Social Security going, it seems like political suicide to do nothing and allow social security checks to stop going out altogether. The reality is, delaying when you take your social security benefit creates greater cash flow in later retirement and Uncle Sam has some strong incentives to not drop this ball.
They Reject Proven Simplicity
When I was a Marine Officer, my first task was to complete a 6-month training course called, The Basic School. The goal of the course was simple, to teach every Marine Officer the basics of leading a Marine rifle company. Our instructors would routinely emphasize “brilliance in the basics” while the young officers would come up with overly elaborate plans that would inevitably fail. The Marine Corps had to beat “stick with what works” into our heads. I frequently heard the words, “Keep it simple, Scott!” Usually, the best plan is only as complicated as it needs to be. This is made clear in Civil War history, as well. Robert E. Lee was called the “Gray Fox”, but U.S. Grant won because he just stayed focused on what had a high probability of working.
Men tend to equate simplicity with “amateurish”. While it’s true that “sophisticated” is a synonym for “complex”, so is “convoluted”. People HAVE benefitted from sophisticated strategies, like options or “funds of funds”, but complexity adds to confusion and risk. In my practice, I’ve found that if I show women a clear, simple, proven strategy to reach their financial goals most are content to stick with it. I can’t say the same for men. Like a newbie Marine Officer, men tend to seek change and sophistication over proven simplicity. A male client is much more likely to tell me about his buddy’s success with Nvidia or Bitcoin, and ask me why I’m not using it. While it’s a fair question, this type of return seeking brings to mind Captain Ahab’s quest for the “great white whale”. Ahab sailed past perfectly good whales that would bring great success so he could chase Moby Dick, bringing about his entire crew’s demise. We guys tend to always be looking for bigger and better. While that mindset can lead to innovation or competition, it can also get investors into some serious trouble.
They Believe They’re Bulletproof
I don’t have sons, but boys come over to play with my girls pretty often. My girls are the proud owners of a Little Tikes princess car that they love to sit in and cruise around our back patio. The youngest girls take turns pushing each other around and honking the horn. It’s really sweet, and I’ve noticed…that’s not what boys do with it at all! They climb on top of the car and take turns seeing how fast they can push each other down the curved slope in our back yard. When I say, “Boys, you’re going to do a header into the shed” what do they do? They go faster, until they either break themselves or the car. I have too many of my own similar stories to count, and I’ve got the scars to prove it. (I didn’t even own a snowboarding helmet until I got married and my wife insisted that I get one.) What could go wrong?
What do boys crashing princess cars have to do with finance? From an early age, we men believe we’re invincible. The effect this belief has on financial planning can be boiled down into two categories: Ignoring the downside and pretending we won’t get old and frail. Ignoring the downside is kind of like pushing the little plastic car down a slope while ignoring the gigantic shed. There are a hundred different ways this plays out in finance, so I’ll just list two of the big ones I see: speculative investing and financing investments.
A great example of speculative investing that men have been particularly drawn to is cryptocurrency. I’m not arguing for or against this particular asset class, I’m just pointing out how speculative it is. The value of cryptocurrency isn’t supported by physical assets or revenue. So, if an investor puts $100,000 into a cryptocurrency, the worst-case scenario is that he could turn his hard earned $100,000 into $0, overnight. Hello shed!
Financing investments is the other common trap I see men fall into. Regardless of whether you’re for or against financing investments, debt adds risk to any investment because, if the value of the investment melts away, you have two problems: a loss of value and a note to pay. The most glaring example of this was the housing bubble that led to the 2008 financial crisis. While financing investments can crank up returns, it’s a mistake to ignore the one-two punch that occurs when you lose value AND have to cover an expensive note.
They Fail to Prepare for their Own Passing
Most men can’t handle the thought of death. We certainly can’t handle the thought of our own demise. As a result, too many men fail to prepare their families for their own passing. The two most common mistakes I see in this regard are, underfunding their retirement accounts for their future widow, and failing to plan for their own long term health expenses. Often, men will make both of these mistakes at the same time with disastrous consequences.
The average life expectancy for those who retire at 65 in the US is 85 and 82 years of age for women and men, respectively.[1] That means that the average wife will have to live at least 3 years on her own, and she will need enough money saved to cover 20 years in retirement. That’s an expensive proposition! And yet, many men will chronically under fund their retirement accounts and choose a pension or annuity option that only pays income while they’re alive, which means their wives will receive a PAY CUT at the worst possible time imaginable.
As terrible as this scenario is, it’s often compounded by an unwillingness to plan for long-term health expenses. When I mention “long-term health expenses” many will read “healthcare”, but there’s a CLEAR difference. Somebody experiencing a long-term health event may or may not need the care of medical professionals. A long-term health event occurs when somebody’s health prevents them from being able to care for themselves. This could be due to cognitive decline or just limited mobility. Since men, statistically, tend to pass away first and since long-term health events are common and expensive, long-term health events often drain retirement assets while simultaneously taking a toll on the caregiving spouse’s health. This scenario can leave a woman financially and emotionally drained with years of underfunded retirement ahead of her!
They Don’t Take Advice
The stereotype of the road tripping husband refusing to ask for directions exists for a reason. There’s something in every guy that wants to prove he can figure things out on his own. This can lead them to forego heeding the advice of a capable financial professional or, the woman in his life. Heck, I’m in my forties and I just started glancing at the instructions when assembling the furniture my wife orders online. Why have I finally decided to read the directions first? Because I’ve broken enough cheap furniture to accept the fact that a little help (in this case from the manufacturer), means getting it right the first time! The same applies to personal finance except, in finance, we’re not talking about ruining a $200 piece of Wayfair furniture. We’re talking about costly financial mistakes, that you may never recover from. Every guy wants to prove, on some level, that he’s as capable as Warren Buffett but the reality is, we all have day jobs and other responsibilities so we can’t spend decades mastering finance and that’s okay! If a man is willing to admit he doesn’t have all the answers and is willing to collaborate with his partner and a trusted financial professional, he’ll likely experience three benefits: A happier partner, better financial outcomes, and less stress.
Final Thoughts
Mistakes, not financial markets, prevent investors from reaching their financial goals. Often times, investors don’t even know when they’re making a mistake and the types of mistakes each gender makes tend to be different. Because men are naturally less focused on future risk, and because men have a deep need to feel capable and adventurous; they’re prone to make mistakes that will have a major impact on their well-being in late retirement. Since women tend to live longer, this means men’s mistakes can be particularly harmful for them. So what’s the solution? Mistakes and setbacks are going to happen but, as Proverbs 15:22 says “Without consultation, plans are frustrated, but with many counselors they succeed.” If men will seek the wisdom of their partners (the experts on their lives) and the advice of a financial professional (the experts on finance) they can insulate themselves and their households against some of the big mistakes, while lowering stress for themselves and the women they care about.
[1] Social Security Administraiton. (2021). Actuarial Life Table. Retrieved from https://www.ssa.gov/oact/STATS/table4c6.html on August 4, 2024.
