Everyone Has a Financial Plan Until They Get Punched in the Mouth
Mike Tyson is probably the last person you’d want to take financial advice from, but you may want to pay close attention to the lesson found in his famous quote, “Everybody has a plan until they get punched in the mouth.” As one of the hardest hitting boxers of all time, this quote transcends the sport in its wisdom.
When he stated this famous phrase, it was in response to critic’s opinion that his opponent’s boxing style could beat him in the ring. His simple statement summed up what he saw as the problem with the other boxer’s plan. It all sounds good until hit with adversity.
Pay close attention, because this same warning can be applied to a financial plan.
So often I hear the term “Financial Plan” thrown around very loosely. It occurred to me that everyone that has investments has some sort of financial plan. Whether they have a broker/dealer offering a plan based upon past returns or an annuity peddler offering a guaranteed return, they have a semblance of a plan for their future money. Even the DIY investor probably has some sort of ‘plan’ for their retirement. If everything works out perfectly, that may work out okay for them.
My question is, what happens to these ‘plans’ when punched with adversity?
Mike Tyson had three incredibly powerful punches that he would combine to decimate his opponents. I don’t have to be a boxing fan to realize how these correlate to 3 huge threats to an inadequate financial plan.
Body Blows – Mike Tyson would begin many fights in close and throw powerful body blows. These weren’t meant to knock out the opponent out, but to wear him down. Likewise, when it comes to a retirement plan, I often see a barrage of blows to retirement accounts through taxes, inflation and fees (as outlined in this article). Getting pummeled over time weakens your financial position, just as Tyson would weaken his opponents to set them up for one of his two signature knockout moves.
The Uppercut – After the body blows, this is the punch that most opponents didn’t see coming and it put many opponents flat on their back. This is an easy correlation to healthcare issues that can hit very hard and often ruin people financially.
Of course, we can expect that rising health insurance costs and long-term care costs will be a threat. But what about the unplanned and surprise events, such as a sudden serious health issue? These can be costly in numerous ways. Beyond what insurance may not cover, there may also be other associated expenses such as expensive prescriptions, loss of income, long-term disability and more.
In this category, I would also put the loss of a spouse. This can be especially devastating if the survivor is dependent on a working spouse’s income, or their retirement pension. There’s also the potential reduction of social security benefits.
Hook Punch – Tyson’s devastating leaping left hook was no surprise. Every opponent knew to expect it, yet it still created the most knockouts, because they didn’t know exactly when it would come during the fight. And when it did, it was game over. Doesn’t this sound like what could happen when the market suddenly takes a drastic downturn? We experienced a bear market in 2022, but nothing like what happened in 2008, when the loss of 30, 40 and 50% of retirement accounts left many people in financial ruin. And here’s the thing, we know bear markets will come. We just don’t know when or how long they will last.
It's easy to show huge gains in a bull market. And investors often are tempted to chase the hottest trending investment. But what's really important is how an investment portfolio performs when the market drops. Market downturns are where the flaws are revealed in the portfolios of those that brag about huge gains in a boom economy.
In 2007, many people had a financial plan. It was working great for them until the knockout punch of 2008 hit. It’s important for a plan to account for the potential of such an event in the future.
With all the hype in advertising and every investor and investment professional referring to their version of a financial plan it’s important to remember one crucial thing: Not all financial plans are created equal.
Some financial plans consist of an outdated formula based upon age. This simplistic approach states that you subtract your age from 100 and that’s the percentage of stocks you should have in your portfolio. Other plans are based upon past growth rates. Finally, you have people that base their plan on a guaranteed rate of return from a pension or annuity.
None of these ‘plans’ can help plan for the most important part of retirement, which is, will you and your spouse have enough money to last your lifetimes, regardless of adversity? They often fail to account for many of the important issues such as inflation, market fluctuations, taxes, healthcare expenses, social security strategy, estate transfers and so much more. A holistic plan, utilizing cutting edge software tools can bring together the important elements.
It’s about having a plan that works. Many people won’t remember the name Buster Douglas, but it shows up in trivia questions as the first boxer to defeat Mike Tyson. Going into their fight, Buster had a plan as well, and not many bet it would work. He was a 42-1 underdog. But what made his plan different was he masterfully accounted for Mike’s three great punches. He walked into the ring with great confidence and expertly utilized a strategy that countered Tyson’s strengths. Even so, it was an incredible fight, and in the end, Buster Douglas triumphed with a 10th round TKO!
This didn’t end Tyson’s career or stop him from making other famous quotes. One not so famous quote was, “I can inspire people on how to use money, how to get economically powerful.”, which may not have been laughable at the time. Yet, after earning over $400 million in the ring, he filed for bankruptcy in 2003.
Let this be a warning to be careful who you take your financial advice from.
Krista McBeath is an Investment Advisor, Chartered Financial Consultant, a Licensed Insurance Advisor, a Fiduciary, and an experienced tax advisor who specializes in financial planning, investments, and insurance.
She utilizes advanced tools for in-depth calculations that analyze tax and retirement scenarios to help their clients avoid a future tax time-bomb. Whether this means enjoying more of your hard-earned money in retirement or passing along assets to loved ones with less tax burden, planning makes the difference.
Her new book, The Generational Wealth System outlines a holistic approach to preserving lifestyle, wealth and legacy.
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