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Life has changed rapidly for all of us recently, leaving us with meaningfully more decisions to make. In conversations with clients during periods of marked change we find it helpful to first take a step back and acknowledge the things you can control versus the things you can’t control. True, you can’t control the current constraints on how you live, how “new normal” will look, or how fast we evolve back into a more familiar way of life. And you can’t control the markets either.

Fortunately, there’s ample you CAN control. It’s our call to decide how we make use of this time, how much news to consume, and how to take good care of one another. Financially speaking, you can control how your affairs will be taken care of if you fall sick or pass away, how you weather any financial headwinds, how you position yourself for future downturns, and how you take advantage of any market or tax opportunities. We each have it in us to stay positive about the big picture while continuing to plan or contingency plan, for the short-term.

In that light, here are five financial planning topics to focus on in these current conditions.

#1 Review or create your estate plan.

If you fall ill and are unable to manage your assets, or your life comes to an end, you want a clear roadmap that lays out your intentions regarding your health and finances. A thorough estate plan identifies the right people to be responsible for your affairs and provides them with clear instructions on how to carry out your wishes.

If you have an estate plan in place now is a great time to review those documents to make sure they are current.

If you don’t have a plan in place now is the time to create one.

In light of recent events people all over the country, young and old, are working on this now. We can help you by:

  • Revisiting your existing plan and exploring your wishes and options with you.
  • Connecting you with an estate attorney to update or create new documents.

The key documents you want to have in place are:

  1. Power of Attorney for Healthcare (Often this is also referred to as an Advanced Healthcare Directive or Living Will). This designates a surrogate who can make any healthcare decisions on your behalf if you unable to do so for yourself. For example, if you are hospitalized and require resuscitation or intubation to sustain your life your surrogate will be tasked with carrying out your wishes. We recommend naming at least one surrogate. Make sure that individual is able, willing, responsible, trusted and physically available.
  2. Durable Power of Attorney (Often also referred to as a Financial Power of Attorney). This document designates an agent to handle your finances if you are alive but unable to do so for yourself. For example, pay bills, sell property and investments, or file your tax returns. Your financial agent may very well be someone different from the person who could best handle your Power of Attorney for Healthcare. What should be similar, however, is that this person (or persons) is also trusted, capable, accessible, responsible, and willing.
  3. Last Will and Testament, often in conjunction with a Trust. This designates the person or entity who will oversee your estate after you pass, directing how your personal effects and potentially other assets will be distributed. It also designates guardians for your children.
  4. Trusts, in many situations. A trust can direct how and when your assets are to be distributed and designate beneficiaries for these assets. It can also instruct how assets will be used to take care of any minor children.

Last, make sure key people know about your plan and what you’re asking of them. If need be it should be easy for them to access your documents and any additional relevant background.

#2 Revisit your income and expenses – incorporating short-term conditions into your long-term financial roadmap

Many of us are experiencing shifts in income and expenses right now. So pause to take stock of your projected inflows and outflows for the remainder of the calendar year and into 2021. This is a beneficial exercise annually, and also during periods of transition or uncertainty. For our clients, we encourage you to ask yourself what’s changed.

  • Map out your income sources.
  • Have any of these changed, or might they change over the next 6-12 months?
  • Identify and categorize your expense types:
    • Fixed expenses: Repeatable items that are non-negotiable and must be paid – the “need to have.” These serve as your baseline.
    • Variable expenses: These are more flexible “nice to have” items or expenses that could be reduced IF needed.
    • Discretionary expenses: Think big ticket items like travel, clothes, non-mandatory home improvements.
  • Have a “Money date” – a purposeful and proactive conversation about your finances that is held at a specific time for a specific length (not too long). Set an agenda and reward yourself after.

We are actively revisiting financial modeling with clients via the Capital Needs Analysis– that is, how much capital do you need in order to get where you want to go? This includes identifying goals – both short and long term – and their financial tethers.  This exercise aims to answer the question, “Am I going to be ok financially?” And addresses whether any mid-course adjustments may be needed

For those who are finding themselves sitting on more cash than expected, consider these recommendations:

  • Ensure that you have an adequate emergency fund.
  • If you are in retirement and withdrawing from your portfolio, lower withdrawals to allow your portfolio to continue to build.
  • If you are still working, maximize contributions to your retirement accounts – buying at today’s lower market prices is a great long term investment opportunity.
  • Start or ramp-up contributions to a 529 plan for your children or grandchildren’s future education expenses.
  • Support your community. We see many people supporting service providers, local businesses, and charities who need help sustaining or expanding their services during this time of need. The emotional boost of helping others may be the win-win needed right now.

#3 Consider refinancing your mortgage

Whether or not you project a cashflow shortfall or surplus right now, if you have a mortgage and it’s been a few years since you refinanced, take a look to see if you would benefit from this move. With the Federal funds rate at an all-time low now, you may be able lock in a lower rate than you currently pay. Our recommendations:

  • Partner with your advisor to determine whether it makes sense to refinance. How does your current rate compare to what’s available on the market?
  • Compare your potential monthly savings on payments relative to any fees and cost associated with applying for and establishing a new mortgage. Also take into consideration the remaining length of the loan. By extending the time period, how much additional interest may be incurred over the life of the new loan?

#4 Understand your investment strategy

Most of you know Private Ocean’s investment strategy well.You know when markets have decreased meaningfully we aim to optimize our clients’ portfolios by rebalancing; that is, systematically selling bonds and alternatives at relatively higher prices while buying stocks at relatively lower prices. We also harvest tax losses; that is, taking advantage of these temporarily low prices to capture loss that you can use to offset future gains while remaining fully invested.

Now is also a good time to revisit how your portfolio is invested. At Private Ocean we determine how much to invest in growth-oriented assets (more volatile investments) and income-oriented assets (less volatile investments) based on two drivers: How much risk can you afford to take to achieve your financial goals and How much risk are you comfortable to take. Two key questions to ask yourself now are:

  • Have your personal or financial goals changed? If the answer is no, there’s no need to shift allocations. If the answer is yes, let’s review that together – a change may be warranted.
  • Do your investments keep you up at night? If the answer is no, there’s no need to shift allocations. If the answer is yes, let’s talk to explore what shifts we can orchestrate to ease your mind.

If there’s anything we know, it’s critical to have a strategy and stick to it during market declines. We believe systematically implementing these tactics benefit portfolios as markets correct – and will serve clients well as we move through current market conditions

#5 Optimizing tax strategies & charitable gifting

The fifth consideration is to optimize tax strategies where possible. The Federal government’s recent relief package, the CARES Act, has waived 2020 required minimum distributions (RMD) from qualified retirement accounts. Of course, you can still withdraw from these accounts with no issue if you need to, but know it’s not required. The key benefits are continuing to allow your investments to grow tax-deferred and decreasing your 2020 income tax liability.

If you’re able to decrease income taxes meaningfully, this could be a Roth conversion opportunity. Meaning, converting some of your traditional retirement account (IRA) into a Roth IRA bypaying income taxes today at a lower tax bracket on the converted value of the IRA (paid for with assets outside the IRA). You/your heirs will not owe any income tax when distributions are made. Furthermore, converting assets at depressed market values today will payoff even more as markets recover.

We also recommend getting strategic with annual gifting to family. If you already gift the $15,000 annual exclusion, consider making annual gifts now in the form of shares of securities, instead of waiting until year-end and doing so in cash. These gifts may be welcome to family members who may need it during this time.

While our experiences are all unique in this time, we always come back to focusing on what we can control. That’s our guide for where to direct our energy for positive outcomes and we’re happy to be that anchor and sounding board for you. We invite you follow up with any questions and to share this with your friends and family.

Want more? Watch our webinar with Sarah Wotherspoon, Director of Wealth Management, and Sabrina Lowell, Managing Partner and Advisor.