Some folks think financial planning is very difficult.
While certain aspects are hard, such as constructing
the right asset allocation to meet your goals, the basic
concepts are not. The best approach to organizing
your finances is the KISS rule: “Keep it Simple,
KISS can help you cut through the endless avalanche
of financial and investment information. The financial
truth is that there are relatively simple and
straightforward ways to improve your financial health.
If you look at this list and need help implementing it,
consider leaning on a trusted financial advisor who
does thorough financial planning.
Banish toxic debt
Work to eliminate all credit card debt. Consolidate
accounts and create a realistic plan to rid yourself of
insidious and toxic debt.
Streamline your investments and reduce costs
Two factors contribute greatly to your returns and risk:
asset diversification and investment expenses. Asset
diversification, especially with professional guidance,
helps you avoid putting too many eggs in one basket.
The cost to run your portfolio (e.g., mutual fund fees)
affects how it performs as high costs can eat away at
Look up the underlying fund expenses on
www.morningstar.com and ask why you need to
buy A, B or C funds when there are less
Consolidate as many of your accounts as
possible, especially old 401(k) and other
retirement accounts that charge administrative
fees, even if you left the employer. You may want
to roll that 401(k) from the previous job into an
individual retirement account, whose cost you can
Avoid purchasing annuities (especially variable
annuities, whose value fluctuates with the market)
unless you fully understand the pros and cons, tax
and inheritance implications, potentially high fees
and surrender penalties. Get second opinions on
annuities from someone who doesn’t sell them.
Pay attention to overlooked assets
Social Security is an asset that is taken for granted for
many folks. If you are tempted to take Social Security
early, when first eligible at age 62, think again:
Your check is up to 25% lower than if you wait until
what’s called full retirement age.
Get grounded advice on the benefits of
postponing benefits. If you begin receiving
benefits from age 62 up to your full retirement
age, your benefits will be reduced.
Married couples benefit additionally from Social
Security planning strategies that can provide
additional income. The Social Security Administration
is not allowed to advise on strategies to maximize
your benefits, so don’t expect to learn about this from
And maybe you should 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
You could be handing an enormous mess to your
heirs (that is, family and friends) if you don’t have your
estate documents in order – or you have no estate
documents. That means a will, a living will or healthcare
directive (governing medical treatments to
prolong your life) and granting powers of attorney to a
trusted person should you not be capable of running
your own affairs.
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.
One of the smartest estate planning techniques to
help reduce estate taxes are irrevocable life insurance
trusts (ILITs) that shelter your life insurance assets.
While insurance benefits usually are tax-free, they still
may be subject to estate taxes if the beneficiary is not
your spouse. An ILIT allows you to give benefits to
whomever you want. 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
It pays to time IRA distributions if you work (or not);
consider Roth IRA conversions (if you qualify, you pay
taxes up-front on the account and then future
appreciation is not taxed); and give charitably in the
form of investments (instead of cash). Wise advisors
consider which types of investments are best held in
taxable accounts, which in tax-deferred accounts.
Your financial advisor
KISS will help you cut through the noise, focus on
what’s most important and become better informed on
your financial journey.
If this list overwhelms you or you have questions
about how to move forward, talk to your financial
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