Ep #13: Making Your Financial Planning Checklist

Benjamin Haas |
  • Review your portfolio
  • Check investments for losses
  • Review your Required Minimum Distribution
  • Check your income
  • Review income needs for 2021



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Full Transcript:

Benjamin Haas  00:03

Hi everyone and welcome to A/B conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now!

Adam Werner  00:26

Welcome back. Happy Holidays. It's December, somehow, someway. We are at the end of the year.

Benjamin Haas  00:38

Yes, exciting time of year.

Adam Werner  00:40

So like most good planners, there's probably some last-minute things that need to get addressed. Make sure we make the list, check it twice. That was yours so for anybody who didn't like that, that was Ben's idea. We have a year end checklist that we go through with clients for our own accord. Let's just share what some of those items are and for those that aren't clients, maybe it's making sure that they're checking those boxes for themselves as well.

Benjamin Haas  01:17

Call it the year end financial planning checklist that we institute. When you and I just talked about this, it was, let's just peel back the curtain, right? Because there are many things that I'm sure we share with our clients that we're doing on a regular basis but then there are these things that even if we're doing it throughout the year, it's really good at the end of the year to just make sure we're going through it one last time. I'll start with the portfolio stuff. I mean, we are financial planners, this podcast is all about that. We say we're planners first, investment professionals second. Part of the financial planning side of investments, it's just checking allocations, reviewing that balance between stocks and bonds and different asset classes. They tended to move a lot in 2020, they moved a heck of a lot. So not only is it pat everybody on the back for hanging in there during a wild ride this year, but let's just see if we need to tweak some things as we head into a new calendar year based on how those asset classes interacted with each other through 2020. Anything else do you want to say to that?

Adam Werner  02:26

No, I think that's a good way to put it. I mean, like you said not all investments went up to the same degree. Even just from that aspect, making sure that the individual investments are still within the tolerance for their target. You know, not again, not everything, either going up at the same rate, or maybe some things are down this year, there's certainly areas of the market that are not your Amazon and your Target and your Walmart that did well in a COVID environment because of their business model. Not everything reacted that way. Just reassessing, making sure that your portfolio allocation as a whole still fits you. Going through March, how did you feel? How did you react? And if you did make it through and stick to your plan, I think you said it, pat yourself on the back but let's readdress moving forward to make sure that if that happens again, that you're able to weather that storm. Making sure that your portfolio is a fit for you moving forward.

Benjamin Haas  03:33

I think that ties into taxes and maybe that's where you were going too because as you were saying, certain things may not have done so well. If some of those investments are in a non-retirement account, then it's really important for us, as financial planners to assess the overall tax impact of gains and losses for individual clients, especially if they've built their wealth in a non-retirement account as opposed to a retirement account. That's a really important one to not only see where they're standing as of today, but we recognize that mutual funds by their very nature, kick off income, capital gains, dividends, interest, and it's really important for us to know what's coming. Usually in the month of December we check to see if there's something that we need to do different.

Adam Werner  04:25

We use a tool to track all that here and it's around this time of the year, a lot of these mutual fund companies either in November or December will kick off those capital gains as a function of any buying and selling that they've done. The managers within these mutual funds and part of their structure is that they have to get passed on to the shareholders and to your point, there's a lot of that you can't control. If a fund is going to pay a capital gain, you either need to accept that or you need to decide, I'm going to sell that fund before that becomes income to me but now that can have a trickle-down effect of well, what's my gain or loss on it? From a sale standpoint is that short term or is it long term? So it's not exactly as easy as well, it's going to pay me a capital gain, I want to avoid that. There are other consequences that may trickle down too so it's just putting all those pieces together and seeing which ones make the most sense.

Benjamin Haas  05:26

This is not meant to make people's eyes glaze over on the whole tax side of things but it's from a year end checklist. It's really important that we be doing this for every individual client that has this type of account, if for nothing else than to know what the consequences are going to be or aggregate it. There are certain things that can offset gains and can offset losses so what is good for one person may not be good for the next. Certainly understanding the aggregate of what's going to happen for somebody is really important, especially if you have a bunch of different accounts at different locations, at different firms. This is where data aggregation and what we want to kind of coach people through why that's so important. Okay, portfolio, gains, and losses. Moving on, what about just an assessment of income and expenses from the given year? How are we helping people there?

Adam Werner  06:24

I think it depends on I guess which camp you fall into. I was looking at the CARES Act this year that instituted the rule that if you were RMD age, or Required Minimum Distribution age, which is 70 and a half or now the new age is 72. If you were in that camp, you didn't have to take your required distribution this year as part of that CARES Act legislation that was passed. So in theory, if all of their income being equal for those people, then this could be a lower income year for that group. Then are there ways to pull income into this year or just other planning ideas to maximize what could be a lower tax year this year.

Benjamin Haas  07:10

Yeah, solid point. So we may have had some of those conversations back in May, June, July. That's important that we had those at that time but if we haven't yet, there still may be a good reason to say, Okay, what are my plans moving forward? What is 2021 going to look like from a capital expense standpoint, projects, things we hope to have happen, things that got delayed because of COVID-19 that I hope can actually happen next year. I'm thinking of all our cruising clients, fingers crossed but pulling the income in, as you kind of said, that is a calendar year thing. When it comes to IRA distributions, things that will be income taxable. Let's take stock (pun not intended), let's make the assessment on is it or isn't it important to spread that out over two years. As planners, we often think we can hit three different tax years from distributions in 367 days. By making some sort of decision on December 31 of one year, anytime next year, and then January 1, January 2 of the following year. So it's, it's good planning to just have the conversations, even if it's as simple as what were you planning to do and allow us to do our work on well, then what makes sense from a tax standpoint?

Adam Werner  08:35

We preach flexibility when it comes to planning so even if it's just deciding which account or which tax bucket is the most efficient way to fill that need. That, again as planners, the more information we have and the more flexibility we can help guide to a good conclusion we hope. Getting ahead of that, before the end of the year is a big one. Let's flip that then to the other side of things. What if you're still working or even if you're not, if this was a much higher income year than years’ past, what's the flip side of that? What can we do to help someone who's looking for either more deductions or maxing out company plans or something along those lines?

Benjamin Haas  09:21

Well, I think you hit it. If you were fortunate that this was a bigger year for you, maybe there was some sort of windfall. Maybe income was just better than you expected. You're at that accumulating phase of life and income was good. I mean, we go to those workplace plans first because there's limits on what you can contribute are pretty high and time may be running out to shove money into that plan but if you haven't maxed it, there should be room to do that. Health savings accounts is another one that we put on that list of potential. It may be trying to figure out how you get over the standard deduction. Maybe it's itemizing deductions that may require some sort of charitable component to what you do. Hint, hint - check our prior podcast on Giving Tuesday. What else is on your mind there?

Adam Werner  10:13

I was just thinking from a business owner perspective. If there's expenses or capital expenditures, there's a piece of equipment or technology, whatever, for next year, it may make sense to pull it into this year. The biggest unknown right now is just, what is the tax plan going to look like next year from a new administration standpoint. Not knowing what the makeup of the Senate will be puts a big question mark on that. So again, just thinking it through, maybe it makes sense to spread it out over multiple years, whatever that is, it still makes sense to at least have the conversation. In that sense, if we're talking about taxes, get your tax preparer involved. They need to be the one that can help drive that bus and verify if it makes complete sense to do that, just thinking if pulling deductions into this year if your income was higher, may make sense.

Benjamin Haas  11:17

I think that's really well said, it's just planning in general. If there's a theme that we want to be out there kind of consistently on our podcast, it's let's try to think 3,6,9,12 months ahead. Again, it's really important for tax purposes here but I know we also internally have a checklist by the end of the year. It's maybe some of the more simple things. The fourth quarter test is let's just double check beneficiary designations or estate documents. I know there are other things on our list that we would want to go through with people but it's just getting yourself into that regular cadence. These are things that we do based on our planning model but if, again, you're not working with us or you have some sort of other advice that you're getting, just make sure you're following that regular cadence that if there are things you said you're going to do at the beginning of the year, and it's been a wild ride in 2020, hold yourself accountable to getting it done before December 31, especially as things get busy with the holiday.

Adam Werner  12:18

I think I'll just put a bow on that, even if it's not certain things that have a calendar year component to them, if it's an IRA contribution, an HSA contribution, or just taxes, if not by year end, then make the plan for very early next year to start to check those boxes. So that again, you're not feeling strapped for time or making quick decisions come April 13th.

Benjamin Haas  12:49

Who knows where the next couple of weeks or months will lead us and it's been recently some good news on vaccines. If you don’t have a lot of opportunity to do some of the things you'd rather be doing, then check some things off this list. Give us a call, we'll help you do it.

Adam Werner  13:06


Benjamin Haas  13:23

Well, then let's just summarize it. First things first, we're consistently assessing portfolios, but for individuals, it's that risk return profile, does it fit? Does the asset allocation still align with what they want to do? Maybe more importantly then just checking that box, the detail on the tax side is really where we put a lot of effort into December meetings here. We do a lot of that behind the scenes but it may require a conversation with certain clients.

Adam Werner  13:57

If it was a lower income year, then there may be opportunity to bring a little bit of income into this year to offset that, maybe that makes sense. The RMD not being required this year, there may be opportunity to still continue to do what is called the QCD or the qualified charitable distribution. If you're charitably inclined, that is a way to get money to an organization and avoid the tax completely. You don't have to worry about a deduction, it just comes right from your retirement account directly to the charity. That's one way to do that. If it's the flip side and your income is higher, then it's looking at ways to bring deductions or expenses into this tax year to offset that higher income.

Benjamin Haas  14:45

We talked about other just financial planning checklists, if you had one at the beginning of the year, make sure stuff is done, if not, okay, but let's make a plan for getting it done soon. I think you mentioned the business owners which was a good one too. This is a really important time to get that tax preparer or CPA on the line and say, “where am I at?” because if there's some sort of capital expense you need to do before the end of the year, then make sure it happens. Thanks for bailing me out on the summary portion of this podcast. I appreciate it. Good teamwork here. Hey, happy holidays. Thanks for all you do. Thanks for all your help and to everybody out there, if this is the last one you're listening to in 2020, get that checklist done.

Adam Werner  15:28

You got it. Thank you.

Benjamin Haas  15:41

Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions. Thanks for listening!


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