Should I Manage My Own Retirement Account After Retiring?

When approaching retirement from a long and successful career, you'll likely have a list of big decisions to make in a relatively short time period. One of those decisions will be whether or not you will manage your own retirement account after retiring. The decision to manage your own investments definitely has both pros and cons. However, before you make a decision, I think it's important to understand what you might be getting yourself into since spending and distributing your retirement savings is much different than saving for retirement.

Welcome to Retired-ish. I'm your host, Cameron Valadez. And today, I want to help you address whether or not you can manage your own retirement account in retirement, and more importantly, should you manage your own account in retirement or should you seek some sort of assistance? I also want to discuss the pros and cons of both options at a high level. So when I refer to a retirement account, think of 401(k)s, IRAs, Roth IRAs, Roth 401(k)s, 457 plans, or maybe even a 403B plan.

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You probably recognize at least one of these names or terms, and you might even have one or multiple of these types of accounts, depending on your situation. When I refer to the management of a retirement account, I don't mean picking some investments for your account or in your account and just staring at them. Instead, I'm referring to many things, some of which might be understanding the different rules of the accounts that you have, understanding and correctly reporting the tax implications when you move money between these accounts or take money out of them, known as a distribution. And I would add that you'll also want to figure out how to mitigate those tax consequences as much as possible when you do those things. You'll need to understand how to invest the accounts according to the different goals that you're going to have throughout retirement, and you're going to have to manage your own emotions and investing behaviors. And this is arguably the most important part, and I'll tell you why a little bit later.

You'll also need to look into how you're going to rebalance your account and your investments to maintain the level of risk that you need to take in order to meet those different goals you have in retirement. And this is something that you typically want to take a look at and consider doing year after year. Otherwise, you might be taking on additional unnecessary risks. Also included in this list of managing your own account, you'll want to manage the right strategy for you when pulling money out of these different accounts. And if you're going to rely on part or all of your retirement portfolio to provide you with income over the rest of your lifetime, you'll have to manage that income strategy in a way that hopefully won't leave a pile of money on the table when you die, unless that's your intent, or you won't run out of money too early, forcing you to cut back on your lifestyle and your spending or go back to work. And lastly, you'll need to find the time to do all of these things and stick with them for the long run. Oh, and a small portion of the management will have to go towards investment selection. There's definitely more. These are just some of the more prominent tasks you'll have to do and things that you'll face when managing your own retirement accounts in retirement.

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Can you manage your own retirement accounts in retirement? The short answer is yes. Absolutely. But whether or not you should is a completely different story and is the real question I want you to ask yourself. There are plenty of people out there who manage their own investment portfolios and do a relatively good job at it. There are plenty of people out there who think they are doing a good job, but they pay more than they need to in taxes and don't even know it, for one example. And there are also plenty of people out there who do all of their investment and retirement planning themselves that have absolutely no idea what they're doing.

While you can manage all of your own financial and investing-related affairs in retirement, it may or may not be in your best interest. Ultimately, that's going to depend on your passion for planning and investing, how you value your time, your willingness to stay educated in retirement planning and things like tax laws, and your adherence to some sort of well-thought-out plan.

What are the potential pros and cons to the do it yourself investing or DIY approach in retirement? The number one potential pro to handling everything yourself is saving money in costs since you won't be paying anyone like a financial adviser or some sort of professional for advice.

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And this makes intuitive sense on the surface. This is usually the number one reason why people try to do everything themselves, but notice I said potential pro. The reason for this is that while you will save money or costs by not paying anyone for any professional services, you may pay more in time, taxes, and possibly investment returns over and above the cost of an advisor or other professional services, but more on that later.

The second potential pro is that you get to make any and all decisions whenever you want without regard to what anyone else thinks or says. Again, this may or may not be a good thing. We will also get into this a little bit later and dive deeper.

And lastly, as far as potential pros go, you might have access to more types of investments in your retirement accounts when you do it yourself. Again, with recent developments in things like technology, most types of investments are available to the public regardless of whether or not you do it yourself or seek some kind of professional advice, but there can be times when a professional you considered working with can't manage or help you with a particular type of investment that you're interested in allocating to or something that you understand very well, and you're interested in using that in your retirement investment portfolio.

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So this can definitely be a pro to doing it yourself, so it's just going to depend on the situation. Alright. What about some potential cons to investing by yourself? Well, in my opinion, the number one con of managing your retirement portfolio yourself is that you will be the one with immediate control over your own life's savings every second of every day. Now, this might sound like a good thing, but this is a potential problem because humans are emotional, especially when it comes to their own money, especially when it's a lot of money, and especially when that pile of money might be responsible for how they live the rest of their life. And emotions in investing don't mix. More on that in a bit. The second potential con to managing your investments on your own is that you don't know what you don't know. And without ever having a second opinion or professional insight, you may never learn what you don't know.

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Sure, nearly every piece of information anyone would ever want to know basically exists on the Internet, and you can even ask an AI chatbot these days anything you want. But if you don't know what applies to you and when, that information is essentially useless. For example, you might own a business and be looking for ways to reduce the taxes you pay, but there are literally millions upon millions of words in the tax code, only a portion of which can or would apply to your specific situation. So have fun figuring out where to go from there and actually following through on implementing any sort of strategy.

Another example is that you may think your retirement income plan is rock solid because it works at the beginning of your retirement when you still have a majority of your money, but there might actually be a very high risk that it gets derailed at some point and fails due to one or more circumstances. It might be nice to have a second pair of eyes analyzing this to help identify these potential pitfalls before they happen. The third potential con I want to mention has to do with implementation. If you've listened to this podcast before, you know I always say implementation is everything.

Don't expect any results or different results, for that matter, if you don't do anything to produce those results. It is not enough to know what to do and how to do it. You actually have to take considerable time to manage your retirement withdrawals, your tax planning, your investment behavior, and the various risks that will pop up throughout retirement, and you need to take action. It's similar to dieting. Right? We all know what eating healthy entails. We know what to eat, and we know, for the most part, how much to eat. But do we do it when left to our own devices? For the vast majority, the answer is no. At best, most people go on a diet but fail to permanently change their diet.

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But if we weren't allowed to, let's say, buy food and instead everything was decided on and provided to us based on the goal we want to achieve, don't you think we would see some better results? Usually, we require, and I mean humans, a higher level of accountability than simply relying on ourselves to see meaningful change.

Another con of doing things completely on your own could be that if you were to predecease your spouse, would they know how to pick up where you left off? I have found that in most relationships, one person typically deals with all of the investing and retirement types of planning. If that person, and this might be you, were to, unfortunately, be out of the picture all of a sudden and your spouse doesn't know what to do or where to start, it may cause a wrinkle in the plans you once had for your family, and everything you worked hard at building could go off in a completely different direction.

I have actually seen where someone who typically handles everything on their own will actually formulate a relationship with some sort of professional ahead of time while they're still alive and healthy so that they are more comfortable with their plan to take care of their spouse if they suddenly aren't around. So, just something to think about.

And lastly, investing yourself introduces the cost of your time and execution risk of when to buy and sell investments or make certain adjustments. For instance, you might have owned an investment that ends up working well, but you happen to have sold it before it had a chance to do well, or you hang on to other investments and don't sell them, and they end up being poor investments for years to come. In other words, you might continue jumping around between investments because they don't work out how you thought, and you don't give any investment the time it deserves to perform.

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What can I say? It's a difficult game. Now, of course, there may be many more pros and cons that I missed, but these are some of the major ones you'll run into when trying to make a decision. Okay. So now the question is, should I manage my own retirement accounts in retirement? First and foremost, if there's anything you take away from this episode, you'll need to prepare yourself for the reality that managing your investments and creating, let's say, an income stream from those investments to plan for a 20 to 30-year retirement is a completely different ballgame than the last 20 to 30 years you spent saving for retirement. I can't stress this enough. This is often one of the biggest surprises to new retirees. Accumulating wealth and staying wealthy are completely opposite things. To accumulate wealth, you need to take some risks, sometimes big risks.

And when you're younger, those risks are a little easier to take. Once you've accumulated a level of wealth that you're comfortable with to stay wealthy, you end up being more careful and take fewer risks. A lot of times, people are actually too careful and take too little risk, which can also present additional risks throughout retirement. For example, you may accumulate, say, 700,000 or 3,000,000 in retirement savings and decide, you know what, I think I've saved enough, and I think I can make this money last for my spouse and me for the rest of our lives. Therefore, you make the decision to either cut back significantly and maybe semi-retire or completely retire and end the consistent paychecks. You make the decision to move on to bigger and better things largely based on the amount that you have saved. In other words, you hit the number you felt comfortable with. And before you know it, you're 14 months into retirement, you feel great, You're confident that you've done all the right things, and you're really enjoying retirement.

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Then, suddenly, something breaks in the economy, and your investments drop by 40%. The panic begins to set in. Now what? What do I do? Do I need to change my lifestyle? Do I need to change the way I invest? Will I have to go back to work? When you were working, you may have experienced situations like this, but it may not have been that big of a deal because you were still earning a steady paycheck and weren't thinking of retiring for maybe another decade or so. You kept putting money away and buying the same investments, albeit at a cheaper price, when markets fell. You may have even been getting a tax deduction every time you did that. So, while it felt somewhat painful, it wasn't necessarily the end of the world, and your lifestyle didn't necessarily change. But now that you see the ”number” that you are relying on to provide for you and your family over the next 20 to 30 years just got cut nearly in half. This is where emotions, second-guessing, and a whole myriad of psychological chaos can set in.

When investing, there are always risks, and most investments go through cycles of good and bad. It's just part of the game. Whether it's the stock market, gold, real estate, your small business, etcetera, You have to know that drastic downturns and even spectacular upswings will continue to happen more often than not multiple times over the rest of your lifetime, even though you might be already heading into retirement. The problem is that we don't get the luxury of knowing when these will occur and even what our personal lives, our spending, our expenses, and goals might be at any given time. All of these aspects of our lives change on a consistent basis.

For example, when times are good, and your investments are performing extraordinarily well, you may start spending more money, maybe to remodel your house or your backyard or gift money to children so you can see them enjoy it. And then, right after you've done so, things take an abrupt turn, and now you're wondering if you'll be able to make it. These are obviously just some examples, but there are many, such as significant changes in tax laws or maybe major life changes, such as relocating in retirement, divorce, or premature death of your spouse, etcetera.

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When you're receiving a steady paycheck and possibly an increasing income every year while you're working, these events can be a little easier to manage because you have an opportunity to make up for any potentially bad financial decisions or weather the storm when your investment returns go south. Now, this may sound dire, and I promise I'm not trying to scare you, and I'm not saying a situation like this will happen to you. But this is a very potential reality, and it has happened to so many people before you. It is a potential risk, and it's one that most cannot afford to take. So, the reason I bring this to light is because when you ultimately make the decision to go it alone or seek assistance with your retirement and your investments, you need to know what can happen and how you're going to address it before it happens. You need to have some sort of plan. There are ways to mitigate the different risks throughout retirement, such as the hypothetical situations I just laid out. But if you're managing your life savings on your own, you need to be sure that you're holding yourself accountable for implementing your plan every year for the remainder of your retirement and that you have a plan in place when certain risks arise.

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And you need to make sure you adhere to this plan in both good times and bad. And I think it goes without saying that taxes are a huge part of the puzzle as well. Paying only what is required in taxes and not a penny more helps keep more of your own money in your own pocket that you get to spend and use towards your other goals. So mitigating taxes year in and year out is equally as important, if not more important, than how you manage the particular investments that you have. Sadly, far too many people, even those with fairly basic circumstances, pay more than they need to in taxes over their lifetime. So don't make the mistake of thinking, hey, I know what mutual funds or index funds or stocks to invest in, so I'm good. Again, this is another component that is very different than your accumulation years, where you may have made very few investment decisions at all and just continued to sock away money automatically, possibly in something like a 401(k), without having to lift a finger. You still might decide to do your own investing in retirement because maybe you enjoy managing your investments, and it's interesting to you. It's fun.

Now, this is great. And if this is you, I'm happy that you enjoy managing your portfolio and that you want to continuously learn and be curious. There's absolutely nothing wrong with that. For some of you, this might be enough to warrant going it alone, given that you actually have the time to do so and the commitment to putting in the work indefinitely. And, yes, there are people who do just fine managing their portfolio on their own and can do quite well. But I will tell you that from my experience meeting with countless new retirees over the past decade or so, deciding to manage it all on your own solely because you enjoy investing and find it intriguing can slowly lure you into a trap that you may not see until you're already in it, and here's why. For a moment, forget the strategies and information and nearly everything about investing that you've read before or that you can find on the Internet because it's your own behavior with investing that is everything, especially when it's your own money and your entire life's savings, your entire life's work.

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This may offend some of you, and I'm sorry, but also not sorry. You being able to pick an investment with lower costs compared to another investment is not investment management. That should not be the determinant for whether or not you do your own investing in retirement or find some sort of outside help. You can go and pick low-cost investments all day long, but you can also make just one just one single mistake that ends up costing you ten times more than the difference between the low-cost investment and a different higher-cost investment that you are comparing or even the cost of professional help. And from what I've seen, most people who make one costly mistake make more than one costly mistake as time goes on. And this is because humans are emotional beings, and that trait just isn't going away. Another example could be that you invest in “xyz-low-cost-index-fund” that had an 11% average annual return over the past seven years. And you owned it over the past seven years, but you only saw an 8% average return.

Just because the investment itself generates a certain return doesn't necessarily mean that you will always get that same return, and that's because of your own investing behavior. We, professionals, call this investing behavior but think of it simply as what you do with your investments and when you do it. Let me help illustrate this by giving you several examples.

For instance, your stock portfolio may experience abnormally high returns for a year and a half, and then you begin to think the good times probably won't last much longer. So you arbitrarily decide to “take some chips off the table” and move money from your mainstream equities, aka stocks, over to cash. You didn't need to spend this money yet, and your goal for the money didn't change, but rather, you felt like you should lock in some returns since things did abnormally well over a short period of time. Then, lo and behold, those same investments continue on to produce double-digit returns for the next two years. But because you took the chips off the table too early in this example, you interrupted the power of additional compounding over multiple years, which can have a dramatic effect on your goals in the long run, especially if investing behaviors like this are repeated.

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And while you are probably familiar with the concept of compounding, I want you to really understand the power of compounding over time because I think most people don't give it enough credit. Here's a unique way that I want you to look at it. If I ask you what 7 plus 7 plus 7 is, you can probably come up with the answer within about a second. But if I were to ask you what 7 times 7 times 7 is, your brain probably just went into a pretzel, and it's likely going to take you a heck of a lot longer than one second to figure out what the answer is. That is the power of compounding. Both questions involve the same number, the same amount of times, but one answer is far larger than the other. Here's another shocking stat that you may not have known that has to do with compounding. Around 99% of Warren Buffett's net worth today came after his 65th birthday.

That's a pretty shocking one. Although you were happy that you made money, in my example, there was an opportunity cost because you're not receiving the return that your equity investments can actually deliver. This would still be considered a costly mistake, even though, in this scenario, you didn't technically lose any money. Right? You felt comfortable taking the chips off the table. Your investment had done well, but the problem is it continued to do well, and you lost out on that power of compounding. And, again, even though no money was lost in this hypothetical situation, it's still a costly mistake because of the returns that were foregone. A similar costly mistake can also happen when your investments are doing poorly. There is an all too common situation, which you may have even found yourself in before, when, let's say, the stock market falls in a dramatic fashion, let's say, 35%, and your portfolio that you thought was well diversified actually fell by nearly the same amount.

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So you're looking at your accounts, and they're down 35%. So you or your financial advisor begin to second guess your initial investment choices and go looking for the new, latest, and greatest investment that isn't supposed to act like the stock market, such as some sort of alternative investment of some sort. You or the advisor decide to take some of your money from your stocks while they are down 35%. So, in that case, you decide to sell some of your stocks to put in this other asset class or alternative type of investment. That way, hopefully, this doesn't happen to you again. Then, for example, let's say the stock market continues to stay in a lull for the next year, and the other new investment that you purchased returns, let's say, 8%. So far, you feel great. Your investment did what you thought it would, and you're happy with your 8% return.

Then, the stock market, along with the investment that you sold, rises a positive 15 plus percent for two straight years. While your alternative investment that you purchased hypothetically gives you a low single-digit return over those same two years. Although this is a very basic hypothetical, hopefully, you're starting to see the picture here. The issue in this situation is that you sold an investment that has historically done well for you because it went down significantly, and you weren't sure what to do other than try and stop the bleeding now and protect yourself from it happening again. You locked in a 35% loss to get an 8% rate of return for one year, then lousy returns for the next two years, while your original investment that was at one point down 35% just compounded by double-digit returns following. In this situation, again, you felt good because you felt successful in stopping the bleeding, and you even made some money, all while your original investment continued to do poorly for an entire year, which can feel like a lifetime. But in reality, you lost money. And not only that, but you just made it harder to recover from.

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Again, an expensive mistake that actually felt like a win. The ultimate message here is that when building and managing investment portfolios, many people simply compare investments based on if their investment plan and behavior causes them to underperform the investment itself; the cost savings could be a completely moot point. The trap is believing that investment selection is a primary reason for deciding whether or not to manage your retirement accounts yourself, especially when using cost as your primary metric. The truth is that investment selection has far less weight than you think when it comes to increasing the likelihood of a successful retirement.

Now, you might think this is biased coming from a professional who does this on a day-to-day basis, but that's only because I've seen these things play out time and time again. And, of course, no one thinks it will be them. In summary, I'd say managing your own retirement nest egg is easier said than done. And this is mainly due, again, to our emotional attachment to the money we worked a lifetime to save and the thoughts and dreams we have of what that money might be able to do for us.

These emotions, although very normal, can lead to behavioral investing blunders at some point during our retirement years, and one mistake can erase a lifetime of work and a scar that never goes away. An unexpected hardship often makes people think and do things they'd never imagine when things were going smoothly. Think of how soldiers go through months, even years of training, and feel confident in their abilities to fight. Yet, once they actually get into combat, most will tell you when the shooting starts, everything changes. In my opinion, author Morgan Housel says it best in his book, Same as Ever. He says, in investing, saying I will be greedy when others are fearful is easier said than done, because people underestimate how much their views and goals can change when markets break.

At the end of the day, there's no right or wrong answer to managing your retirement investment portfolios and your retirement planning yourself. It all comes down to personal preference.

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You might decide to take on the risks that come with doing things yourself, but maybe your situation is fairly basic, so it's easy to manage, and you're not spending a whole lot of time on it. You may have the wherewithal to do things yourself, but you prefer someone to look over your shoulder as a system of checks and balances to help you identify the things that maybe you don't see. Others decide not to go it alone simply because they want someone that they know, like, and trust to be there to help maybe their spouse manage the finances in the event they predecease them. Or maybe you wanna offload every bit of the job to somebody else so you can spend your time focusing on other things in life. There's a cost to any of the decisions you make. You just have to decide which is worth it to you.

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