Did you miss our webinar, Market Update: How Inflation and the Current Market Volatility Affects Your Portfolio? Have no fear—you can access the presentation and recording here. In this blog, we dive into some wealth planning opportunities you can take advantage of during these volatile times.

8 Key Considerations

1. Review your financial plan- This is first and foremost! A financial plan is a “living breathing” document that should be reviewed periodically and tweaked as your circumstances change. A financial plan is based on numerous assumptions about the future and your perceived risk tolerance. If you created your plan during the last twelve years of the bull market, you may have assumed more risk tolerance than you are comfortable with. The last two years with the pandemic and now the current events in Ukraine are a good stress test for your plan. Down markets are normal, and they are a regular occurrence, but now is the time to review your plan to make sure it aligns with your goals and your risk tolerance.
   
2. Tax loss harvesting and portfolio rebalancing- These volatile times give us some opportunities. A decline in portfolio values creates the opportunity to take some tax losses and rebalance your portfolio. This helps you to shield some future gains with those losses that you create. Down markets provide the opportunity to buy in at lower prices and to deploy excess cash at bargain prices. Who doesn’t love a good sale? Many portfolios have gotten out of balance due to the long bull market.. Now is the time to bring your portfolio back to its target asset allocation and align it with your true risk tolerance.
   
3. Consider a Roth Conversion- A Roth conversion is where you take some or all your traditional retirement accounts and convert them to a Roth IRA. The benefits of a Roth IRA are there are no required minimum distributions during your retirement; the assets grow income tax free; and if you take qualified withdrawals, they are also tax free. You can also leave a Roth IRA to your beneficiaries, and they get to withdraw funds tax free as well. There is a cost to convert—you have to pay the income taxes associated with the conversion from assets that you hold outside of your retirement accounts. If you have a traditional IRA worth $200,000 and you want to convert it to a Roth, that $200,000 comes into your income in the year of conversion. Making a Roth conversion during times when the market is down equates to a lower tax bill on the conversion.
   
   Roth conversions are not right for everyone—some of the factors you should consider:
   1. Do you expect to be in a higher tax bracket in retirement?
   2. Will you be subject to the estate tax?
   3. Will you need the money in retirement?
   4. What is your time horizon between now and retirement?
   5. Do you have enough liquid assets to pay that tax from accounts outside of your retirement accounts?
   6. Are you over 65 and already on Medicare and will the conversion throw you into a high income bracket? (Medicare will come back and increase your premiums based on the high income—it takes a couple years for Medicare to adjust back down.)
      
4. Review estate plans and irrevocable trusts- The last few years have clearly taught us that life is fragile. Now is the time to review your estate plan and make sure it is still in line with your wishes and up to date with any tax law changes. You also want to make sure that the people you’ve designated to administer your estate- your trustee, your executor and your healthcare agents are still in a position to do so. A review of how your estate will be distributed should also be conducted as beneficiaries’ circumstances may have changed. We often encounter the issue where individuals have all the documents; they have the full estate plan, but they haven’t taken the time to make sure that all their accounts have been titled to agree with the estate plan.
   
   If you have previously made gifts to an irrevocable trust, and the assets in that trust are now depressed due to market conditions; you may have an opportunity to exchange assets you own outside of the trust that have a strong growth potential for those underperforming assets in the trust. This allows you to shift future appreciation of the assets you currently own out of your taxable estate and place them into a trust that is going to be exempt from being included in your estate. I recommend you review this suggestion with your attorney and your trustee. You will also want to check with your attorney about other modifications to your trust including changing the trust situs for state income status (decanting).
5. Make lifetime gifts- With depressed asset values and interest rates that are still low, now might be a good time to make gifts and move additional appreciation out of your estate, assuming first and foremost you feel comfortable with your own long-term security. There are several gifting strategies that can be employed, where you only give away the future appreciation of the asset. These include Granted Retained Annuity Trusts (GRATs), intra family loans and charitable lead trusts. With each of these strategies, you make a gift or loan and in return, receive back the principal and a stated amount of interest which is a low rate right now, over a specified term. What you achieve is you get the future appreciation of those gifted assets out of your estate. Discuss these strategies with your attorney, financial advisor and your tax advisor.
   
6. Review cash flow needs- Market disruptions like we’re currently experiencing are a good time to monitor your cashflow needs and make sure that you have adequate cash outside of your investment portfolio. If cash is tight, it’s a good time to consider deferring large purchases, potentially postponing your retirement, revising your budget, or consider strategic borrowing to get through the tough times. The key is to avoid panic decision making as we await some stabilization in the markets.
   
7. Consider strategic leverage- As a general philosophy, we do not encourage debt to finance a lifestyle, although we do see it a lot. There are times, however, when strategic leverage makes sense. Establishing a line of credit is a relatively inexpensive source of liquidity. Having a line of credit in place allows you to have access to cash needed for expenses without requiring you to liquidate investments in a down market. This is also a good time to review all your existing debt for consolidation and refinancing opportunities.
8. Review risk management strategies- Now is a good time to review all your risk management strategies including life insurance, disability, LTC insurance and umbrella liability insurance. Cybersecurity is a big issue, so make sure you have some identity theft protection in place.

Don’t forget to check out our recording- Market Update: How Inflation and the Current Market Volatility Affects Your Portfolio. Questions? Contact us.