(PUB) Morningstar FundInvestor

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May 2 014

Morningstar FundInvestor

about the basic questions you would ask if you took over someone’s financial plan without much (or any) advance preparation. Headings might include: p How much you can safely spend each year without running out of money. p Which accounts to tap for living expenses on an ongoing basis. p The basics of required minimum distributions and which accounts require them. p Which accounts to tap as a last resort or that you have earmarked for heirs. p An outline of the three or four most important finan- cial-planning tasks you handle each quarter and each year. (Forget anything that’s in the category of “nice to do”; stick to the basics.) Automate What You Can To help ensure none of your usual financial-planning to-dos fall by the wayside, consider automating the most important ones. For example, you can make sure that distributions from your income-producing securi- ties get spilled directly into your bank account, thereby providing cash for near-term living expenses. You can also automate your required minimum distri- butions from your IRA s and 401 (k)s, and use the auto- payment feature on your online banking platform to ensure that you don’t miss your most important bills, such as your health and auto insurance. If you pay quarterly estimated taxes, and most retirees do, you can use the Electronic Federal Tax Payment System to make those payments electronically. Begin Building Your Team If your partner has no interest in or aptitude for finan- cial matters, it’s unrealistic to expect he will know how to identify an appropriate financial advisor. The financial-advisory landscape is a jumble of designa- tions and business models and can be off-putting even to investment-savvy individuals. As a result, people without a lot of financial knowledge often choose advi- sors based on their interpersonal skills rather than making an objective assessment of the individual’s financial acumen and whether the business model is a good fit. Even if your plan is to not hire an advisor right away, the onus is on you to vet some advisors for your spouse to ensure their investment approach

is palatable, their fee structure is fair, and that you can meet the minimum initial investment amount. I’m a believer in asking for referrals from related profes- sionals—such as your accountant or your estate-plan- ning attorney—rather than relying on the friends and family network for recommendations. Simplify Do all of the above steps make your head hurt? If so, the best way to reduce your succession-planning workload—and the potential workload of your spouse —is to streamline your portfolio. You can reduce the number of moving parts by collapsing multiple accounts of a given type into a single account at one firm—for example, merge multiple joint taxable accounts into a single one and purge your portfolio of so-called onesies, which are small pools of assets held here and there. True, there’s no single firm that’s the absolute best at every investment type, but a handful of firms (such as Vanguard and T. Rowe Price Group TROW ) field solid options in all of the major asset classes. In addition to streamlining the number of accounts you hold, it’s also wise to switch to lower-maintenance options, such as index funds, and away from higher-maintenance options, such indi- vidual stocks and bonds, as you get further into retirement. In so doing, you’ll reduce your own port- folio-oversight obligations and simplify life for your spouse if he eventually inherits those duties. œ Contact Christine Benz at christine.benz@morningstar.com