A few years ago, I had a client in his 60s who was nearing retirement. Before he began working with me, David had some random “stuff” in various taxable and tax-advantaged accounts.
He was ready to get his investments streamlined, but still wanted the latitude to do some trading outside of his retirement accounts.
But David was doing what’s called “mental accounting.” He was looking at each various account type as a separate entity, depending on the source.
But this is classic mental accounting, and it’s one of the most dangerous mistakes retirees make.
In David’s case, he viewed some accounts as places to take outsized risk, and others were earmarked as more conservative. We worked it all out to invest in a way that was suitable for his time horizon, while still allowing him some latitude for trading in a small account.
Kate Stalter explains what to do instead ...
