The Top 10 Financial Mistakes Airline Pilots Made in 2020

I think we all deserve some credit for getting through this year. I know it has been tough on you. Your industry has been turned upside down – again. But, you survived. You adapted. And you continued to do what you do better than anyone in the world – providing safe transportation for your passengers. And you consistently do this, no matter what’s going on in the rest of the world, no matter what’s going on in your personal lives. I have a ton of respect for that. And from someone who has been one of your passengers, thank you for keeping my family safe.

At Wings Wealth Management, our mission is to help you make more informed financial decisions – to help you keep your family financially prepared. Just like you experience a lot of things out there on the line, we experience a lot of things as we help our clients. And as your experience makes you a better pilot, our experience makes us better advisors. As I look back on 2020, I want to share the top 10 mistakes that we saw airline pilots make. My hope is that everyone learns from mistakes such as these.

  1. No long term tax planning: Not understanding how your income sources will be taxed during retirement typically leads to a lack of tax diversification — and too much tax being paid during retirement.
  2. Trying to predict the market: We probably had more opportunities this year to try to predict the direction of the stock market than I can remember. I saw a lot of pilots try to do it. I didn’t see many of them get it right. Remember, you make a majority of gains in a minimum number of trading days. And, once you miss those good days, you can’t get them back.
  3. Letting emotions drive decision making: When the stock market is dropping, it is easy to make investment decisions based on fear. You’re afraid the market will go down more, so you get out. Then when it starts going up, you’re afraid it might go back down so you stay out – missing the gains.  Emotions are not a good basis from which to make investment decisions, the consequences of which are often irreversible.
  4. Being so task saturated that you do nothing: You know what happens when you are in the Red. Your ability to focus and execute is compromised. I believe many pilots spent a lot of 2020 in the Red. And because they didn’t have help, many pilots weren’t able to properly make progress on and manage their financial plans.
  5. Not making changes to your 401k: Most years, 401k maintenance can be minimal. However, 2020 was one of those years where we made a large number of 401k recommendations to our pilot clients. As I spoke with new clients during the year, I discovered that none of them had made any changes to their 401k before they hired us. This resulted in lost opportunities.
  6. Not understanding how your retirement plans work: We continue to see pilots who do not have a thorough understanding of how to best leverage their retirement plans – even though they thought they did. When utilized properly, your plans can have an enormous impact on your retirement.
  7. Stopping contributions: When they feel uncertain about the future, pilots often stop contributing to their retirement and non-retirement investments. The result is often failing to purchase more shares of investments when the share prices are down.
  8. Not understanding how to reduce taxes now: For some reason, many pilots have given up trying to save taxes. In my experience many CPAs aren’t helping them with this type of planning. Every dollar you don’t pay in taxes can be put toward another one of your goals.
  9. Making the wrong Social Security and pension decisions. Just because your friend makes a decision in this area or just because a Google search comes up with best strategies, doesn’t mean they are right for you. Once made, these decisions are irreversible and you (and your spouse) have to live with them for a lifetime. I have seen pilots spend more time bidding for the following month than they spend on these decisions. It’s critical to get them right.
  10. Taking an early retirement package when you shouldn’t. This was by far the biggest mistake we saw in 2020. Airlines offered more early retirement packages than ever before. And way too many pilots accepted those packages without doing the proper due diligence to understand whether or not they were financially ready to retire. Here’s the problem – most of those pilots won’t know they made a mistake until later in retirement when their investment balances become uncomfortably low, they have a health issue that is not properly planned for, or they pass away and their spouse doesn’t have enough resources.

What’s interesting is that this is my top 10 list. I chose them from a list of over 30 mistakes — that I pulled together in about 20 minutes. Maybe some of these apply to you. Maybe none of them do. Maybe some of the other 20+ mistakes that I didn’t list apply. The point is you don’t know what you don’t know. None of us do.

This is an article about Situational Awareness (SA). On the airplane, your SA is enhanced by your instruments, your senses, your fellow crew members, other pilots, air traffic control, maintenance, operations, flight attendants, etc. Proper SA is critical to the safe operation of your aircraft.

Proper SA is also critical to your financial health. At Wings Wealth Management, our process, which is grounded in Planning, Guidance and Advice is designed to help you build and maintain effective financial SA. As the year comes to a close, please give some thought as to what you can do to help improve your financial SA. And, as always, feel free to reach out to us if we can help your family.

From all of us at Wings Wealth Management, we wish you a happy holiday season, and a safe and healthy 2021.