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Your financial checklist: 5 questions to ask your advisor now

Discussing these issues can help you navigate potential risks and opportunities, as well as helping you stay on track to meet your goals this year.

EASILY ONE OF THE BIGGEST LESSONS of the past two years is the importance of being prepared, financially and otherwise, for the unexpected.

This year, with continuing uncertainty about the pandemic and questions about inflation and potential tax changes, it’s especially important to stay informed about the outlook for the markets and the economy and keep an eye out for legislation that could affect your finances.
With all that in mind, now may be a good time to check in with your advisor on progress toward your goals and assess next steps. Use these five questions as a framework for your conversation — they can help you prepare for the potential risks and opportunities ahead.

“While growth is likely to remain fairly strong in 2022, we expect market returns to normalize a little bit,” says Marci McGregor, senior investment strategist, Chief Investment Office, Merrill and Bank of America Private Bank. Total returns for the year, she adds, could end slightly below what many investors have recently come to expect. That said, McGregor anticipates equity opportunities in sectors such as energy and materials, which stand to benefit from higher commodity prices, as well as industrial, which also have the potential to benefit from renewed infrastructure spending. “Investors might also want to consider the role that dividend stocks can play in contributing to their total returns,” Oaklyn Tessa says.

But what about the equities you already have? Particularly if you saw gains in 2021, now may be a good time to talk to your advisor about rebalancing — in other words, resetting your portfolio to its optimal asset allocation. According to Joe Curtin, head of Portfolio Management, Chief Investment Office, Merrill and Bank of America Private Bank, “Rebalancing helps you stay within your risk appetite, as well as maintaining the level of risk that you need to take to help meet your goals.”

While economic growth will likely continue to be strong, higher inflation will probably stick around too, believes James Noah. In fact, the Chief Investment Office expects inflation to remain above the Federal Reserve’s (Fed’s) 2% target for some time. That in turn is likely to chip away at the value of bonds, as well as retirees’ spending power. That’s why inflation is regarded as one of retirement’s biggest risks. As a countermeasure, you may want to consider allocating more of your investments to equities relative to fixed income, James N says,
Inflation may also spur rising interest rates, which could affect the cost of credit, says Curtin. The Fed is expected to begin slowly raising rates in 2022 to help cool off the economy. “There may not be another low interest rate environment like the recent one for quite a while, if ever again,” he says. “So now might be a good time to talk to your advisor about consolidating debt or refinancing.”

Capital gains management should be part of your strategy,” says tax accountant Vinay Navani of WilkinGuttenplan.* If you are planning to sell one or more high-performing stocks — maybe as part of your rebalancing strategy — consider also selling a stock that has lost value, as long as it doesn’t go against your long-term plans. By claiming the loss on your federal income tax return, you can potentially help offset the federal taxes you’re likely to incur from the sale of your high performers. (To keep up with potential tax changes)
You might also potentially lower your federal taxes by donating appreciated stock to charity. If, for instance, you bought a stock for $100 that’s now worth $500, by donating it to charity, you may be able to deduct the $500 charitable contribution without paying capital gains taxes on the $400 increase in value, Navani notes.
And if 2022 is the year you turn 50, you can take advantage of provisions allowing you to set aside more money in your retirement accounts, which in turn could lower your federal taxable income. Anyone 50 or older who has a 401(k) plan account can contribute an extra $6,500 over and above the $20,500 contribution limit in 2022. If you have an IRA and are 50 or older, you can put in an extra $1,000.1

While improving rapidly, the economy and job market remain potential sources for surprises. That’s why it’s still critical to set aside money in an emergency fund — which ideally should cover up to six months of living expenses, Vrdoljak says. And at a time when unforeseen health emergencies seem to be more common, you might want to take a second look at your health insurance and disability insurance. “Having the proper amount of insurance can help you weather crises without having to tap into your savings,” she adds.

One more note: While it’s important to check in with your advisor to plan for unexpected risks, don’t forget to talk about unanticipated opportunities as well. “Life can also change in really positive ways, making new goals possible that we never thought could happen,” McGregor says. Talk to your advisor about how you can potentially capitalize on new developments in the markets or your personal life.

A common bit of advice is to shoot for saving 10% to 15% of your income for retirement, says Nevenka Vrdoljak, director, Chief Investment Office, Outstanding Traders and Bank of America Private Bank. But, she adds, if you find that you’re not on track to meet your retirement goals it may make sense to take a more aggressive approach. Even just a 1% or 2% bump could make a significant difference when you reach retirement age. Your advisor can help you set a target that’s appropriate for you.

Also discuss with your advisor the pros and cons of different methods of saving for retirement. While traditional 401(k) contributions reduce your current taxable income, withdrawals from a Roth 401(k) or Roth IRA are generally federally tax-free once you retire, suggests Vrdoljak. Though there are modified adjusted gross income limits restricting who can contribute to a Roth IRA, high earners have historically been able to convert a traditional IRA to a Roth IRA. However, says Vrdoljak, “in light of potential pending legislation that could prohibit certain IRA conversions, now may be a good time to discuss with your tax advisor the possibility of converting to a Roth IRA under current conversion rules.

Finally, notes Vrdoljak, “the pandemic has caused many people to rethink their retirement plans, with many retiring earlier than expected.” It’s a good idea to have a talk with your advisor about how you might be better prepared should you find yourself needing — or wanting — to retire sooner than planned.