With no shortage of turmoil occurring over the past few months, it is not surprising that many people are concerned about the state of their finances. Bridgeport-headquartered People”™s United Advisors addressed the impact of current events on financial planning with a webinar titled “The Big Shift: Wealth Strategies in the Time of Pandemic, Volatility and Legislation.”
Michael Boardman, president at People”™s United Advisors, acknowledged the socioeconomic whirlwind that has consumed daily life.
“What a crazy few months it has been,” Boardman said. “Given a wild ride in the markets and the economy, the global COVID-19 pandemic and civil unrest across all of our 50 states, it almost goes without saying that everyone”™s plans have changed. To that end, we believe that all of this upheaval is translated very directly into an up-close and personal need to look at plans, analyze investment portfolios, carefully consider what has been legislated at the federal and state levels, and how it might affect you positively or negatively.”
Zuzana K. Brochu, People”™s United Advisors”™ vice president of financial planning strategy, said, “We view financial planning as a process that goes way beyond just investments. It really looks at your entire financial picture. And I like to say it connects the dots, because sometimes we tend to think of the various pieces of our financial picture in a vacuum. For example, our portfolio, our insurance, taxes, estate plan ”” financial planning ties all of these together. It really connects the dots between the various pieces of our financial house.”
Brochu stressed that this approach is crucial because many people will find themselves in a different tax bracket this year as a result of the current economic upheaval.
“This may present opportunities in their portfolio,” she said. “Perhaps they may be able to take more gains and diversify out of a longstanding concentrated position. So that right there connects your tax situation to your investments.
“But then,” she added, “let”™s tie that further with the retirement side. A lower tax bracket might also indicate that this is a good time to do a Roth conversion. And if you do a Roth conversion now, how does that impact your estate and legacy planning? How do you connect to that side of your financial picture? For example, it might make more sense from a tax standpoint to divide your estate differently and designate different beneficiaries for your traditional versus your Roth IRA.”
Brochu urged a new consideration of how current events relate to financial planning. She noted that the pandemic and accompanying recession will create a different cash flow for business owners and greater agitation for seniors whose retirement projections are now outdated.
“You really should be working with your adviser to not only review your current budget, but especially rerun your retirement projections,” she said.
Brochu also noted stock market volatility should encourage people to readjust their planning based on their risk tolerance, while federal legislation including last December”™s SECURE (Setting Every Community Up for Retirement Enhancement) Act and the CARES (Coronavirus Aid, Relief, and Economic Security) Act from March could benefit some people but also bring new risks and higher taxes to others.
Charles Olson, senior vice president and senior wealth adviser, picked up on the legislative changes with aspects of the SECURE Act.
“If you”™re born after July 1, 1941, you can delay taking required minimum distributions from your retirement assets until age 72,” he said, noting this was a change from the previous 70½ years requirement.
“Aside for making this number a much more easy one for us all to calculate, it presents an opportunity for those in this age bracket to hit the pause button for a year. As a result, you can leave the money in the account where it will remain invested and continue growing tax deferred. This enables you to avoid paying income taxes on the distribution for almost two years and potentially reduce your overall tax liability by staying within a more favorable tax bracket for this year.”
Olson also observed that those who still earn income past age 70½ can still contribute to a traditional IRA.
“Nice, right? We”™ve seen several of our clients take advantage of this recent change, as many of us are living longer and continuing to work well into our seventies and beyond,” he said.
Olson suggested now “may be an optimal time to convert the retirement savings from a traditional IRA to a Roth IRA,” noting partial conversions can be an option instead of full conversions.
“We recently helped a married couple filing jointly evaluate whether or not to convert the wife”™s large IRA,” he said. “Instead of doing a full conversion this year with the IRA, we chose to do a partial one over the course of three years. It enabled them to stay within the guidelines, taking full advantage of the benefits associated with a Roth conversion and staying within the current tax bracket.”
Justin M. Neuwirt, a wealth adviser in People United Advisors”™ New York office, took the lead on estate planning by pointing to a pair of misconceptions related to the topic.
“The first is that it”™s mostly for high net worth individuals and it”™s mostly for the elderly,” Neuwirt said. “And the other misconception is that it”™s a one and done type plan. And that”™s just not the case.”
Neuwirt cited Brochu”™s connect the dots analogy by incorporating estate planning into the big picture rather than keeping it as an isolated consideration.
“It”™s really about coordinating with the other professionals that you”™ve hired over the year,” he said. “So, working with your estate attorney, working with your tax professional, your insurance professional and your financial adviser, all coming together and taking one real cohesive approach to making sure that that plan that you put in place 10, 15, 20 years ago is still appropriate.”
Neuwirt said reviewing estate planning is important.
“Make sure that all the stipulations that you put in place years ago still make sense today,” he said. “That the guardians that are listed for your children are still the same individuals that you would like them to be today. Or perhaps you”™ve listed somebody as the trustee of a trust and you no longer have a relationship with that individual. Making sure those documents are up to date as possible and reflect your wishes is super important.”
On the investment account side, Neuwirt recommended reviewing whether the beneficiaries on the accounts need to be changed or can remain in place. He also pointed at the pandemic to ensure health care planning documents and advanced directives such as “do not resuscitate” need to be added or updated.
“Unfortunately, today we”™re seeing people that are getting sick at younger ages, more than we”™ve ever expected and more than we”™ve ever seen,” he said. “And having these documents on file is incredibly important.”
