Your Retirement . . . with Brian & Bob: Looking forward to 2021, be smart and follow a wise financial plan
People with estates larger than $5 million should take advantage of gifting strategies that can utilize the current limit of $11.58 million per person at least partially.
By Robert Price and Brian Harrigan
As we look forward to 2021, we can’t help but look back at an unprecedented year and wonder, what next? We’ve heard Gilroyans call the year 2020 tumultuous. Economic slowdown, market volatility, and challenges that come from working remotely have all been cumbersome.
With the coronavirus vaccine being distributed in order of priority, many are hopeful that 2021 will bring greener pastures. U.S. infectious disease expert Dr. Anthony Fauci said it is likely the vaccine will be readily available to the general public by late March or early April. So what should we be considering as we move into 2021? With light at the end of the tunnel during this time of anxiety, we should remember having a financial plan you’re committed to can help provide an element of control.
There are currently three trends that stand out. Here is an overview of each and what they mean for many of us.
- Short-term interest rates will likely stay low leaving many “safer” investments with historically low earnings. The uptick in vaccine availability will help our economy bounce back, still having a cash reserve for emergencies and future investments is advisable. We still recommend a minimum of three to six months worth of expenses saved in the event of an emergency. This can help address gaps in employment and the need to invade other accounts should something unexpected occur. Refinancing opportunities can also be good to explore at this time to help create additional reserves.
- Large tax policy changes are unlikely in 2021. At the time of this writing, the run-offs for the Georgia Senate have not occurred. The results will dictate whether we have a Democratic or Republican majority. Regardless of the outcome, it will be difficult to implement heavy tax changes quickly. Still changes are coming whether we like it or not. It will be especially interesting here in California. With many Bay Area-based technology companies leaving for more “corporate-tax friendly” states, the losses in tax revenue will continue to hurt Californians for some time.
A Democratic majority senate means a portion of the federal estate tax exemption will be on the chopping block. A Republican majority will leave things more balanced for now, slowing massive changes.
Regardless, long term tax moves should be considered. Especially for people with estates higher than the federal exemption limit. Individuals with estates valued at $5 million or less will likely not be affected by changes to the federal law, but state may still be a concern. People with estates larger than $5 million should take advantage of gifting strategies that can utilize the current limit of $11.58 million per person at least partially. Those with estates larger than $20 million may want to lock in the full exemption before it is eventually reduced. Year-end tax loss harvesting, Roth conversions and charitable gifting strategies can also help ease burdens.
- Retirement policy changes are likely. A new “Secure Act 2.0” bill has been proposed in the U.S. House of Representatives with a goal of providing more flexibility for retirement savings. The bill could push required minimum distributions, currently age 72, back to age 75 as well as allow older workers larger contributions. We recommend delaying distributions from social security as far out as age 70 to maximize what you receive. Unfortunately recessions have historically caused an increase in those electing benefits at age 62 (the earliest
you are allowed).With likely changes ahead, many have reevaluated their timeline for retirement as well as re-examining other aspects of planning. Estate planning and insurance coverage are wise to review. You want to be sure your documents are up to date including health care directives, which can sometimes be overlooked.
Sailing the seas of low interest rates, tax uncertainty, and changing financial planning needs are best accomplished by developing a plan. We recommend contacting a professional regarding these trends to start a discussion that can help provide peace of mind in 2021.