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Why You Should Schedule Your Annual Financial Checkup for Retirement Now

Given fluctuation across markets and shifting objectives, it’s become even more critical for individuals and families to review wealth plans through a holistic lens on a periodic—or better yet, annual—basis.

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In light of the unforeseen circumstances of a global pandemic, it is now an optimal time to review your finances, diagnose how goals might have shifted and identify whether changes should be made. Given fluctuation across markets and shifting objectives, it’s become even more critical for individuals and families to review wealth plans through a holistic lens on a periodic—or better yet, annual—basis.

Here’s a few considerations to take as you refresh your financial strategies ahead of and throughout retirement.

Define (and Consistently Redefine) Your Goals

Traditionally, retirement planning focuses on whether current savings and accumulation targets are sufficient to meet a predetermined goal designed to cover anticipated spending. Today, preparing for retirement means adjusting your plan and investments to support your goals as they evolve and change and taking advantage of emerging opportunities.

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Leaving a long-term career for a passion—owning a business, providing consulting services, shifting to part-time work for a nonprofit or other alternative arrangements—could largely impact retirement goals. Pursuing an active wealth process that includes investing, spending, borrowing, managing and protecting assets allows ongoing evaluation and may improve and specify how your retirement is defined.

Assess Borrowing Strategies—A Total Balance Sheet Approach

The global pandemic has taught us that we need to be nimble when addressing a liquidity shortfall. Long-term cash positions in investor portfolios to cover liquidity contingencies won’t keep up with inflation. As an alternative, using a total balance sheet approach to evaluate borrowing opportunities allows individuals and families to know what levers to pull when addressing unexpected disruptions, including a sudden loss of liquidity triggered through either an income gap, unforeseen expenses or market gyrations.

A total balance sheet approach considers all available funding solutions, including strategic borrowing. Utilizing prudent borrowing strategies can help avoid disrupting a long-term investment approach or having to sell investments to raise cash when markets are volatile. This could in fact trigger capital gains and increasing taxes when those investments have appreciated.

Consider a Roth IRA

If your income and corresponding taxes are lower as a result of external factors, including the current pandemic, it may present opportunity to consider a Roth IRA conversion, especially when your IRA or other qualified retirement assets aren’t needed to cover retirement expenses. Those who anticipate higher taxes later in retirement may also benefit from converting to a Roth IRA to lower their overall taxes.

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The lower tax rates we’ve experienced since the 2017 Tax Cuts and Jobs Act are set to expire at the end of 2025 and will increase in 2026, possibly sooner through congressional action. A Roth conversion strategy, which takes advantage of these lower rates coupled with lower income, may allow you to pay less in overall taxes.

Once an IRA is converted, investors who don’t require distributions from the Roth IRA to cover living expenses have an opportunity to allow the Roth IRA to grow tax-free. Unlike a traditional IRA or other qualified retirement assets, no distributions are required from a Roth during the lifetime of the account owner or during the lifetime of a spouse as beneficiary. After the passing of a Roth owner and a beneficiary spouse, recent changes outlined in the SECURE Act allow many non-spouse ultimate beneficiaries to defer distributions for up to 10 years and to distribute the assets tax-free.

Clean House—and Your Estate—to Protect Your Assets

Confirming that your estate, tax and insurance documents are updated can help minimize taxes and ensure your assets are ready to transition where you want them to end up under your estate plan. Beyond addressing estate and transfer tax issues, effectively titling assets can also provide creditor protection. It is equally important to review your beneficiary designations, especially those named beneficiaries of large IRAs and other retirement accounts.

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To avoid disrupting wealth transfer intentions, it is also important to be mindful of planning for all beneficiaries. If trusts or charities are involved, meeting distribution objectives while minimizing income taxes requires more attention given their complexity. As a result, legal documents—especially where any trusts are involved—should be reviewed closely to consider recent changes brought about by the SECURE Act, which significantly impacts trust beneficiaries. Insurance policies also need to be kept up-to-date to provide both adequate funding and appropriate coverage for health, long-term care, life, and property and casualty contingencies. Without close and continued attention, your assets could risk inadequate protection, which ultimately could disrupt an otherwise sound retirement strategy.

By applying an active wealth framework to address issues consistently, individuals and families can ensure that their retirement plans are adaptable to meet whatever unplanned changes they experience.

Kathleen Stewart is a senior wealth strategist at BNY Mellon Wealth Management.

This material is provided for illustrative/educational purposes only. This material is not intended to constitute tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.

BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation.

©2021 The Bank of New York Mellon Corporation. All rights reserved.

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