The Mistake That Cost My Parents $600,000

For those of you who don’t know, my parents are “My Why” behind my decision to become a Certified Financial Planner®. They are wonderful people who just happened to make many poor financial choices over their lifetime. Of those decisions, one ultimately stands out above the rest. This one mistake could have changed not only the course of their lives forever, but that of my sister and I’s (and our future children) as well, a mistake that would reverberate for generations to come. Had they not made this mistake, I may have become a marine biologist instead of a financial planner, so much would have changed. So, what’s my parents story and what exactly did they do to rob themselves of so much money?

My Parents At A Glance

My parents were both college educated professionals who were more motivated by ideals and social values than by money. They are incredibly kind, giving, intelligent, and hard working individuals and did “all the right things” by getting degrees, working hard, being good citizens, good parents, you name it. They have a multitude of beautiful human qualities but have always lacked financial education. I absolutely love helping people like them who are kind good natured human beings but are simply not money minded.

My father was a drug & alcohol addictions counselor for 35 years. He has a heart of gold and gave hope to people where there was none to be found. He literally saved people’s lives just through conversation and giving love/acceptance to those who desperately needed it. He provided mental health in a time where it wasn’t available (or valued) like it is today (therefore magnifying it’s importance). While his job rewarded him richly on a personal level, his income was abysmal. In fact, after working hard for 35 years with this company, I still earned more than him in my first job right out of college. To make it worse, his company lacked a retirement plan so my Dad never thought to save for retirement. To make it worse worse, my Dad hated thinking about money and delegated all the financial stuff to my Mom (much to her resentment as she was financially lost as well), it wasn’t exactly a true team effort.

My mother started out working for the government. Between her work ethic and smarts (140 IQ) she quickly climbed the ranks and became one of the highest paid women in the federal government! Quite a lofty achievement for a woman in the late 70’s early 80’s. Eventually she got burned out working for the government, cashed out her 401k, and used it to pay for medical school at Emory University. She’d go on to become a nurse as well as the primary breadwinner and financial decision maker for our family. With my Dad not wanting any part of planning their finances, she “winged it” through all her financial decisions. She would lean on well meaning but equally uneducated friends and family for opinions but never a professional. She could only see the cost of hiring the professional but not the subtle (and vastly larger) cost of not hiring that professional.

So Where Did They Mess Up?

Were you paying attention? Because I actually already gave it away in the paragraphs above.

When my Mom left the Federal Government in 1982 at age 32, she cashed out her 401k with a $15,000 balance to pay for nursing school. Not only did she end up having to pay income tax and penalties for withdrawing this 401k money before age 59.5, she was spending away her only retirement savings she had to that point. She never had someone to point out alternatives like student loans which would have alleviated her need to cash out her 401k.

If she had instead invested that 401k into a simple S&P 500 index fund (no hot stocks, just a boring index fund), that $15,000 would have grown over 40 years to approximately $600,000 in 2022 (before taxes & fees). Even if you account for taxes, investment fees, and any potential adviser fees in this simple example, this sum of money would still have completely changed my parents lives, their marriage, my sister and I’s lives, and what opportunities we as a family have for our future.

The Impact It Had (Beyond Money)

I must admit, it’s difficult to write this without getting emotional. My entire childhood my parents had constant arguments over money, marital resentment, distrust, they lamented having to reach out to family for help, and they always stressed about their financial future (immediate and long term). Money can’t fix poor communication or other issues, but it would have provided more time and opportunity to work through the non-financial problems in life (when you’re living paycheck to paycheck these problems tend to get ignored).

Loving my parents dearly, I devoted 33% of my take home income from my first “big boy job” out of college to help them pay down their mortgage (after paying for college entirely by myself). I continue to support them to this day. Had my Mom not made that one mistake, my parents might have been supporting me through college instead of the other way around.

I still remember crying in front of my boss at my entry level job, utterly embarrassed, but my emotions were too powerful to contain. My father had just retired from his highly toxic workplace at age 62 and started social security early (resulting in significantly reduced retirement benefits for the rest of his life). I was in the middle of 90 hour work weeks while studying for my CFP® exam. Between that and wondering how the hell my parents were going to financially survive, I became emotionally overwhelmed (in silence) before breaking down into tears in my boss’ office. I think back to only this one financial mistake my Mom made and wonder how different things might have been.

Why Financial Planning Is So Damn Important

Had my mother sought legitimate professional advice for her financial decisions, it’s safe to say she wouldn’t have cashed out her 401k and likely would have saved even more, created a budget, spent within her means, and dodged a multitude of other mistakes I’ll detail in a future post. It’s safe to say my parents could have become literal millionaires (if they kept saving) instead of scraping by month to month on social security, with no real nest egg, depending on their kids/family for support, and having only the equity in their home as their only real financial asset after a lifetime of hard work.

Only at one point in her life did she consider a financial adviser but assumed the cost would be too high and would add to her existing debt so she never reached out to anyone. She could only see the cost of hiring an adviser yet was blind to the subtle (and vastly larger) cost of not having one. Well, therein lies the $600,000 mistake.

On a lighter note, you are not my parents. You as a 20, 30, 40 something have time on your side, your book is not yet written. Young families and professionals like my parents at the time never had the opportunity to hire a fiduciary advisor and now they live with the consequences of their unguided choices. Not only do you have time on your side, you have access to fiduciary financial planners who can help you navigate the important financial decisions that will impact you and your family’s lives for years to come. You don’t have to be alone in this. Recognize when it’s time to trust a professional with your finances, not just well meaning friends/family who lack true expertise (like my parents did).

San Diego Financial Advisor | Fee-only Fiduciary

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