March 23, 2022

Angie O'Leary
Head of Wealth Planning
RBC Wealth Management–U.S.

Having a wealth plan and making sure you’ve reviewed it with your advisor in the context of the world today is vital. After one of the longest bull markets in history, the market has become turbulent. With inflation, international turmoil and rising interest rates, the winds of uncertainty are fierce. This confluence of events has many people rethinking their priorities for the future and making changes to their financial behavior—and justifiably so. What many don't realize, though, is how those personal changes and macro events can have huge implications on long-term goals.

But where do you even begin? Let’s take a look at four strategies to consider.

 1. A wealth plan can help weather financial storms

Start with a conversation about how turbulence has impacted your life and your family's life along with a discussion about how it has or hasn't changed your plans for the future. Even if you have a solid plan, depending on your asset allocation, you should be prepared for your net worth to take a hit. But as long as you stay invested, the loss is merely a paper loss. It doesn’t become a realized loss until you sell. So if you can, hold firm and stay invested.

In addition to financial goals, you’ll also want to consider your personal goals and any changes to them—particularly as a result of the COVID pandemic. Millions of Americans quit their jobs last year as part of the Great Resignation and leaving the security of a regular paycheck is scary no matter your level of wealth. Others relocated to warmer climates as jobs became more flexible. This is where a financial advisor can be particularly helpful. A key part of our role as planners is helping clients understand all of the inputs to their plan and the related volatility that goes with it. Not just the capital market assumptions, but also inflation, interest rates and taxes. Many advisors use “what if” scenario planning to help illustrate the impact that small changes in one assumption, such as inflation, can have on plan results.

2. Evaluate a Roth IRA conversion

Consider turning lemons into lemonade by converting or partially converting a traditional IRA that has declined in value into a Roth IRA. What typically stops investors from converting a traditional IRA to Roth IRA is that the converted amount is added to their income, so taxes are due. Yet with an IRA that has declined in value, the owner is converting a smaller amount, so the taxes will be less. You might consider a partial conversion by identifying and converting stocks that took an unexpected hit but expected to recover. Taxes will be paid on the lower amount and then benefit from the recovery being tax advantaged. 

Similarly, if you are able to make contributions to your Roth or traditional IRA, now may be a good time to do that, as the lower current prices translates into the purchase of more shares, which will amplify any positive performance. Also, be sure to maintain contributions to employer 401(k) plans and even increase them, if possible.

3. Plan ahead for potential tax changes

There has been a great deal of tax uncertainty as the Biden administration continues to explore tax policy changes. What might be more certain and should be on everyone’s radar is the great sunset looming with the expiration of the Tax Cuts and Jobs Act (TCJA). 

Sunsets are provisions of the tax code that expire at a specified date. The TCJA made significant changes to individual income taxes as well as estate and gift taxes. For individual taxpayers, almost all these provisions expire or “sunset” at the end of 2025, while most business provisions are permanent. Without additional tax policy changes, the tax year of 2026 will be a big shock to many U.S. taxpayers and will especially hit boomers hard as many settle into retirement with big taxable nest eggs. 

There are a host of estate and gifting strategies to explore. This is another opportunity to rely on the guidance of your experienced advisors including your attorney and accountant.

4. Revisit insurance

This is also a good opportunity to revisit your life and long term care insurance policies to determine whether these policies still meet your needs; if not, look at opportunities to repurpose. Many of us have neglected this part of our financial health for years.

While the uncertainty factor feels like it's at an all-time high, there's no better way to bring down financial anxiety than with a solid wealth plan. In fact, one might argue there's never been a richer environment for planning conversations and for resetting needs, wants and wishes to better match the reality of today.

This article was originally published in MarketWatch.

Asset allocation and diversification do not assure a profit or protect against loss. RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor.

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

Angie O'Leary

Head of Wealth Planning
RBC Wealth Management–U.S.
We want to talk about your financial future.

Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.