By Jane DeLashmutt O'Mara, CFP®
In the past 10 months, we have had a lot of time to think about where we are in life — to determine what we value most and to assess our financials, our health, our relationships, and our future. For some, maybe those thoughts turned into questions such as these: Am I doing the things that are truly important to me? What do I want to accomplish when this is all over? Am I living my best life? If not, what can I do to change course?
When times are good or bad, it is easy to let emotion creep into our financial lives. For many, the pandemic may have brought on thoughts of uncertainty and fear. In 2020, these emotions were elevated by events resulting from social and political turmoil as well as natural disasters.
In times like these, it is only natural for us to focus on the well-being of our physical health and our finances. While the vaccine rollout is now underway, it is likely that we still have many months ahead of us in which we will continue to quarantine or practice isolation in one fashion or another. Some may have already renewed gym memberships or made commitments to a new diet to kick start the year. So what better time to double down on your efforts to meet your financial goals?
After you finish that next Zoom group fitness class, schedule a time to meet with your financial advisor — preferably a CERTIFIED FINANCIAL PLANNER™ professional — and consider the following list of discussion topics.
In 2020, we saw markets decline 40% in a single year and recover their losses within a matter of months to close out the calendar year with very impressive double-digit return. Despite markets doing very well and the economy overall showing signs of recovery, many individuals are still struggling. Likewise, many asset classes such as technology and communication services significantly outperformed during the past year, while others have yet to recover such as financials and energy. With this in mind, talk to your financial advisor about rebalancing your portfolio, trimming some of the winners and perhaps adding back some of the losers from the past year.
The new “tax year” offers opportunities to do so with a clean slate for capital gains. Consider what your “appetite” for capital gains might look like in 2021 when discussing rebalancing opportunities with your advisor. With the possibility of higher income and estate taxes looming, you might also discuss opportunities for accelerating income by “harvesting” gains or delaying deductions. You might also discuss establishing tax-advantaged accounts such as Roth IRAs, which grow tax free.
In 2020, many of us found our spending habits looked a little different than they did in prior years. Perhaps you discovered that you didn’t need to spend $5 a day on coffee or that lunches out at $10 a meal, while convenient, are not a necessity. The work-at-home and virtual learning dress codes have pushed us toward more casual attire, which may have given our clothing budgets a break as well. Data shows that many of us spent those saved dollars on home repairs and renovations. Still, others took advantage of the extremely low interest rate environment to refinance their primary mortgages. Spend some time to review your expenses in 2020 and consider your spending goals for the new year.
Once you have reviewed your spending history, consider a closer look at your savings. Review contributions to your employer-sponsored retirement plan, and work with your financial advisor to determine your eligibility to make contributions to traditional IRA and Roth IRA accounts. If you do not qualify to contribute to either, consider a non-deductible IRA contribution. If you are saving into health savings accounts or 529 plans, review your contributions to those accounts as well, while prioritizing your savings according to your goals.
In advance of your next meeting with your financial advisor, take some time to write down your goals. Consider how those goals may have changed in the last year. Perhaps you are now considering an accelerated (or a delayed) retirement, or perhaps you have decided to shore up your emergency funds to carry you through the next global crisis, whatever that may be.
With the change in calendars, many of us are renewing insurance contracts. Take some time to review your insurance coverage and premiums with your advisor. If you have not reviewed your estate plan in a few years, take some time to review that as well and confirm that your beneficiaries and powers of attorney are up to date.
Finally, in preparation for tax filing, consider the possibility of upcoming tax liabilities for 2020 and map out your income for 2021, and ask your financial advisor to coordinate a discussion with your certified public accountant about the possibility of executing partial Roth conversions. Even if you do not believe that taxes will rise, it is often beneficial to have a diversity of funds from which to pull in retirement including after-tax (such as individual or jointly held accounts), tax-deferred (such as rollover IRAs and retirement plans) and tax-free funds (such as Roth IRAs and health savings accounts).
About the author: Jane DeLashmutt O'Mara, CFP®
Jane DeLashmutt O'Mara, CFP®, is a Senior Portfolio Manager at FBB Capital Partners. She works with high-net-worth clients, incorporating education and compassion in the financial planning process. She enjoys working with endowments, trusts and families with unique or complex estate planning needs. Jane is a Certified Financial Planner™ practitioner and a member of the National Association of Personal Financial Advisors.