In light of the pandemic and historically low interest rates, here are some planning ideas to consider now –
1. Roth IRA conversions – the cost of transitioning from taxable to non-taxable distributions and no RMD requirement is paying income tax now on your account value. That value may have been reduced by stock market declines and tax rates are as low as they’re likely to get, making this a timely idea.
2. Annuities – for most people, retirement is not about assets – it’s about income. Might it be a good idea to take advantage of the opportunity to accumulate dollars on a tax-free basis and then guarantee an income you can’t outlive to address much extended longevity? A good way to reduce your exposure to stock market volatility at a time in your life when your runway is not as long as it was and you may not have the time to recover from a stock market crack. This is a safe money solution using products, some of which offer upside potential and downside protection.
3. Review estate planning documents – with some time on your hands and maybe feeling vulnerable, this is a good opportunity to work with your attorney to create or update documents – will, health care power of attorney, durable power of attorney, trusts, beneficiary designations, provision for digital assets and letter of intent. This can largely be done remotely and will go a long way toward accomplishing the goal of estate planning – getting the right assets to the right people at the right time at the least tax cost.
4. Life insurance – it has been widely and appropriately used by people of means to pay estate taxes using discounted dollars. If you don’t have an estate tax problem, you may have an estate size problem. Life insurance lets you pay a little and leave a lot to those you care about. Many use it to replace lost stock values and clean up messes and others use it to increase their legacy – what they leave behind – how they want to be remembered. For the sophisticated buyer, premium financing can be an attractive way to acquire life insurance in this environment of extraordinarily low interest rates.
5. Savings – if there is one thing our run-in with the virus has taught us, it’s the absolute need for a rainy day fund. Whether you are a business or individual, you need a reserve fund to help withstand unforeseen events. It may be a hurricane, virus, recession or illness, but there will always be disasters we can’t predict. How you accumulate such a fund is less important than having it.
6. Sale of no longer needed life insurance – When policies are no longer needed, wanted or affordable – and especially when money is tight, perhaps due to ripple effects from the virus – policyowners have the right to sell a policy the same way they sell their home. Both are assets. Many people don’t realize their policy has secondary market value and can provide a lump sum cash payment while they are still alive. You wouldn’t abandon your home without selling it after years of making mortgage payments. Don’t abandon a life insurance policy after years of making premium payments. A potentially great way to cover costs of retirement, healthcare and long-term care.