By Eve Kaplan, CFP® Practitioner
Are you familiar with the KISS (“Keep it Simple, Stupid”) concept? KISS helps you refine your elevator speech, write concisely…and can boost your financial health. KISS can help you cut through the endless avalanche of financial and investment information/tips.
After working with hundreds of financial planning and investment clients, here are relatively simple and straight-forward KISS (“Keep it Simple, Stupid”) ways to improve your financial health. Guide to the perplexed: If you look at this list and roll your eyes in exasperation, consider leaning on a trusted financial advisor who does thorough financial planning and who has YOUR best interests at heart (see Step 10, below).
Crush Toxic Debt:
1. Work to eliminate ALL credit card debt. Consolidate accounts (and find a lower interest rate, if possible). Create and follow a realistic schedule to rid yourself of this insidious debt.
Streamline Your Investments and Reduce Costs:
2. Two factors drive returns and risk: asset diversification and investment expense ratios. Asset diversification – especially with professional guidance – helps you avoid putting too many eggs in one basket. The running costs of your portfolio (e.g. mutual fund fees) also drive returns. Look up the underlying fund expenses on www.morningstar.com and you’re your advisor why you need to buy A, B or C shares from him/her when there are less expensive options.
3. Consolidate as many of your accounts as possible, especially old 401(k) and other retirement accounts that charge administrative fees (even if you’re left the employer)
4. Avoid purchasing annuities (esp. variable annuities) unless you fully understand the benefits and drawbacks, know about the tax implications and be aware of surrender penalties. Get 2nd opinions on annuities from someone who doesn’t sell them!
Pay Attention to Overlooked Assets (Social Security/retirement planning):
5. Social Security is a “take for granted, overlooked asset” for many folks. If you are tempted to take Social Security at age 62, think again and get grounded advice on the benefits of postponing benefits. Married couples benefit additionally from some Social Security planning strategies that can provide you with additional income. Social Security is not allowed to advise on strategies to maximize your benefits, so don’t expect to learn about this from Social Security!
6. Work as long as possible. A financial planner can tell you how long you should work and what you should do in retirement to avoid outliving your assets.
Your Loved Ones Will Thank You…. (Estate Planning):
7. You could be handing an enormous mess to your heirs (family, friends) If you don’t have your estate documents in order – or if you have NO estate documents (will, living will/medical health care directive, powers of attorney). Estate attorney fees are not high if they potentially save your heirs hundreds of thousands of dollars of estate tax when your assets pass to your family, friends or charity.
8. One of the smartest estate planning techniques to reduce estate taxes are Irrevocable Life Insurance Trusts (ILITs) that shelter your life insurance assets. Your financial planner or estate attorney can tell you if this is a strategy you could use to increase your children’s inheritance.
Avoid Excessive Tax Payments:
9. It pays in spades to time IRA distributions if you work (or not), consider Roth IRA conversions (if you qualify), give charitably in the form of investments (instead of cash), etc. Wise advisors consider which types of investments are best held in taxable accounts, which in tax-deferred accounts, etc.
Who Delivers Advice That Puts Your Interests First?
10. Bone up on the basics of financial advice-giving. The big buzz word in financial planning is “Fiduciary.” Brokers do NOT have a fiduciary obligation to put your interests before their own. That goes for advisors who sell products. Financial planners/advisors who do sell products (=fee-only) DO have a fiduciary obligation to put your needs before theirs. The quality of the advice you receive can depend upon how your advisor is paid.
(C) Copyright Eve L. Kaplan 2013