We’re all familiar with the acronym “KISS,” and most of us probably agree with the concept in principle. In practice, however, very few of us lead simple lives. I think we’re guilty of making things more complicated than they have to be, and that’s particularly true when it comes to personal finances.
Take retirement planning, for example. It’s increasingly common for people to have multiple 401(k)s, IRAs, and other qualified accounts. That’s often the case if people have changed jobs several times or opened different IRA accounts as a way to diversify their investments. But this complexity has its drawbacks.
Just think of how time-consuming it is to review and organize all those account statements. And how much harder it is to pinpoint the rate of return, risk level, and fees associated with the portfolio as a whole. There may be no improvement in diversification either, because the securities in different mutual funds and exchange traded funds can overlap.
In this example, I’d favor a simpler approach that involves consolidating these investments and streamlining the portfolio. You may be surprised by the number of people who come to Johnson Brunetti for this very purpose. Experience has taught us that clients benefit most from short, straightforward plans that are easy to understand and implement. We don’t focus on the traditional 100-page tome that you think of as a financial plan. Our clients have told us that the information in such a complex plan is overwhelming, so they leave presentations confused and unable to make decisions.
The majority of our clients are looking for answers to basic financial questions: What kind of financial shape am I in? Will I have enough money to live on in retirement? Will I run out of money if I live a long time? They deserve honest, intelligible answers that can relieve their anxiety and increase their confidence in the future. They don’t want to hear “We’ve run a Monte Carlo analysis that tells us you have a 92% chance of living to age 94, and you won’t outlive your money as long as volatility isn’t 10% or more on the downside.” That response may be accurate, but it’s too complicated to be helpful.
Life and health insurance are notoriously difficult to explain in simple terms. It’s the rare advisor who does an excellent job of simplifying the complex concepts and avoiding acronyms and industry jargon. As a result, many owners of variable life insurance, long-term care insurance, and annuities don’t understand what they purchased. And these misconceptions can be costly.
For example, it can be problematic to surrender or cancel an insurance policy until you understand the coverage and are sure you no longer need it. Unfortunately, I’ve seen too many people take action before they talked to us, only to discover they needed the insurance and their older contract was better than anything they could buy today.
Our society often equates “complicated” with “intelligent” and “successful.” I don’t think they’re comparable, especially when it comes to money matters. Consider whether it’s time to look at your financial life differently and with an emphasis on simplicity.
Joel Johnson, a certified financial planner, is managing partner of Johnson Brunetti, a Connecticut-based retirement and investment firm. He is a resident of Tolland.