The financial worries that keep Americans up at night run the gamut from cradle to grave: daily expenses, college education, retirement nest eggs. While stressing over the big fiscal picture, many investors easily fall into some costly—but very much avoidable—financial traps.

We asked the CNBC Digital Financial Advisor Council to weigh in with some of their clients' most memorable financial blunders and near misses.

—By Anthony Volastro, CNBC.com
Posted 20 August 2015

More than 100 million American adults lack life insurance, and 55 percent of Americans feel they don't need it or have just enough, according to an industry study by the life insurance nonprofit Life Happens.

Its a huge mistake to go without coverage, said Ric Edelman, chairman and CEO of Edelman Financial Services. He points to one example in which a client refused to carry insurance.

"The couple's husband said it was a waste of money and preferred to invest those dollars instead of paying premiums," Edelman recalled.

Within a year the client was diagnosed with a severe illness and his wife was forced to quit her job, leaving the couple without an income. The client has since died, and his wife has been struggling to support herself.

"I'm not sure she will ever be able to afford to retire," said Edelman.

The idea of investing rather than purchasing life insurance is extremely common.

"Every person feels they can do better with their money, and over time that may be true, but often people don't have sufficient time for this to happen or are unable to stick with their investment plan," said Marvin Feldman, CEO of Life Happens.

Perhaps the biggest no-no is digging into your retirement funds early.

Cathy Curtis, owner and founder of Curtis Financial Planning, recalled one client who tapped into her nest egg early to help start a new post–recession career.

"She took a huge lump sum—more than $300,000—out of an IRA before age 59½," Curtis said.

The client viewed the money as just "sitting there." However, she failed to take into consideration the sizable taxes and penalties that would be incurred—and was shocked when the bill came.

"I tried to convince her to take less out so she wouldn't take a tax hit, or use 72(T) distributions because she is close to age 59½," said Curtis, who felt helpless as her client ignored her advice. Code 72(T) allows for penalty-free early withdrawals from an IRA but requires equal periodic withdrawals over time.

Tapping retirement accounts early is known as "leakage," and the obvious concern is a depletion of funds needed in retirement. According to the Center for Retirement Research at Boston College, "leakage" reduces retirement wealth by 25 percent.

For as long as behavioral finance economists have been trying to figure out why individuals make risky financial decisions, advisors have been fighting against such choices.

"I can't tell you how many people have made irrational decisions about stocks," said Steve Lockshin, principal of AdvicePeriod. "Clients have had 90 to 100 percent of their investments in one security."

One of Lockshin's clients had a significant position in a stock and was holding out for a 1 percent gain on top of what he had already earned. Lockshin convinced him to sell. It was a good move, because shortly after, the stock tanked.

"His shares would have gone to near zero, but now he is set for life," said Lockshin.

Why take the risk for 1 percent? Very ambitious people set extremely high goals and attach high importance to them, said Hersh Shefrin, behavioral finance economist and professor of finance at Santa Clara University. These individuals have "predetermined what success means, and they're willing to take the risk because they view it as failure if they don't meet their goals," he said.

Research shows that high-risk behavior stems from an individual's physiological makeup and is found in people from all socioeconomic backgrounds. The challenge for financial advisors is to help redefine what success means for these individuals, in order to put a lid on risky behavior.

Many timeshare companies lure potential buyers with free "no-obligation" vacations, and the tactic works: Sales totaled nearly $8 billion last year, according to the American Resort Development Association (ARDA).

By buying on impulse during these trips, owners can wind up in a financial jam. Advisor Ric Edelman worked with a couple who accepted one of these free vacations.

"All they had to do was attend a meeting about the virtues of buying a timeshare," he said. "They fell for the sales pitch and paid $20,000 for a timeshare they won't use and which they can't afford." They purchased the timeshare without seeking his advice.

Sometimes these on-the-spot purchases are due to high-pressure sales tactics. ARDA president and CEO Howard Nusbaum said that potential buyers need to be cautious.

"If someone calls you with an offer and you didn't ask them to call, hang up, or if they won't put an offer in writing and send it to you the next day, move on," Nusbaum warned. These types of offers often come from the secondary market, which doesn't have stringent consumer protections.

Tim Maurer, director of personal finance for The BAM Alliance, sees a careful balance in timeshare value. "They don't tend to offer a great, if any, investment value. But for the right person, they can be used to regulate the cost of annual vacations," Maurer said.

Ultimately, Edelman and Maurer do not recommend timeshares to clients.

By keeping personal problems from financial advisors, clients can wind up making costly money mistakes.

"We are better equipped to help clients make good decisions when we can see their full situation," said Shannon Eusey, president and co-founder of Beacon Pointe Advisors. She noted a particular case in which the need to tell all came into play.

After doing a long personal audit with a married couple looking to sell nearly $1 million in stock, Eusey's firm discovered one spouse, the wife, had terminal cancer—something she did not want to disclose. When she finally opened up about her illness, the firm advised her and her husband not to sell and instead structured a plan that saved them well over $100,000 in inheritance taxes.

"The problem was that if we didn't find out she was sick ... we would have told them to sell," said Commie Stevens, a financial planner at Beacon Pointe Advisors. "But when they did tell us she might not live very long, that changed how we approached it."

Stevens finds that clients tend to keep personal issues—such as children with drug abuse problems and divorces within the family—from their financial advisors. But "for us advisors, all of this is important in estate planning," she said.