Historically, economic recessions have impacted men in the workforce more than women. During the Great Recession, men lost twice as many jobs as women. But the current economic crisis created by the Coronavirus pandemic has affected women more than men, as businesses have been closed in an attempt to stop the spread of the virus. Nearly 12 million women lost their jobs in just the four months between February and May 2020.
This reflects the changing nature of the American workforce, and has revealed that women are more vulnerable to sudden economic shocks, because of the gender pay gap and their greater reliance on childcare and school to be able to work.
So, what are some steps you can take to improve your financial security in an uncertain economy?
Update Your Financial Plan
During turbulent times you may feel anxious and uncertain, and you may be wondering if you’ll still be able do all the things you’ve been planning for. Can you still afford to remodel your kitchen? Will you still be able to help pay for your grandkids’ college tuition? What about the cost of the annual family reunion?
It’s important to remember that the financial plan you built together with your financial advisor isn’t just a product, but the first step in an ongoing process that should last a lifetime. Any time your circumstances change, or the environment around you does, it’s a great idea to check in with your advisor and update your plan.
The software tools your advisor uses are so sophisticated that they can quickly and easily incorporate all of the changes taking place, and give you the information you need to make informed choices. Things like lower investment returns, higher inflation, lower income or higher living expenses can all be factored into your plan.
Keeping your financial plan up to date can provide you with peace of mind, and a degree of comfort when the world around you is unsettled and life seems out of control.
Review Your Estate Plan
As part of the financial planning process your financial advisor will have wanted to confirm that your estate plan was current. If you didn’t have an estate plan in place already, your advisor should have strongly encouraged you to meet with an experienced attorney to have one drafted.
An estate plan is made up of a series of documents, each with a different purpose: a will, a durable power of attorney, a health directive and, possibly, a revocable living trust.
The purpose of your estate plan is to protect you and your assets if you become incapacitated or can’t make decisions for yourself, and to ensure that your wishes are carried out when you pass away.
When times are uncertain and the environment around you seems unsettled, it can be comforting to know that you have things in order, and that you and your loved ones are protected. Checking in with your estate planning attorney for a quick but thorough review of your plan can provide true peace of mind.
Play the Long Game
During uncertain times, when it seems that everything around you is in turmoil, a natural reaction can be to make decisions based on your emotions. But the best thing for your long-term financial security is to keep in mind that crises of all types come and go, that economic recessions eventually end, that markets recover, and that “this, too, shall pass”.
Your financial plan that you built together with your advisor is an objective, long-term roadmap for your financial security. If you have questions about the impact of the current environment on your plan’s long-term viability, check in with your advisor and create some “what if” scenarios to consider. Odds are that your plan still works, and that the current turbulence won’t have a material impact on your long-term financial security. Confirming that you’re still on course and headed in the right direction – especially during uncertain times – can remove the emotions from your decision-making, and give you the context you need to make smart choices for the future.
Don’t leave your future to chance. Contact our team at Springwater Wealth today to learn how we can help you develop a financial plan for your peace of mind.
Consider Proactive Tax Planning
One potential benefit from an uncertain economy and a turbulent investment environment is the opportunity to proactively explore tax planning strategies.
For example, if your income is temporarily reduced – perhaps because you’ve taken time off from your career to raise a family, or to care for a parent or loved one – your tax professional or financial advisor may recommend converting some of your pre-tax retirement savings to a Roth account, a so-called “Roth conversion”. A Roth conversion can also be attractive when the stock market is temporarily down, since you’ll pay less in taxes because the amount converted is lower.
Tax loss harvesting is another potential strategy that can make sense if some of your investments have temporarily lost value. If you sell investments for less than what you paid for them, the loss you realize can be used to offset future taxable gains. Just be sure that when you buy an investment to replace the one you sold to generate the loss, you avoid the IRS’s “wash sale rule” and buy something that provides the same asset class exposure you want without being considered the same or “substantially identical”. Your tax professional or financial advisor can help you navigate this potentially rocky terrain.
Alternatively, if you own some highly appreciated investments – maybe stocks that you bought a long time ago, or that have risen in value much more than the overall market – and your plan includes financial support for someone who’s in a lower tax bracket than you are, you may want to consider gifting those investments, so that the recipient can sell them and pay less tax than you would.
Work with Your Financial Advisor
If you’ve selected the right advisors to work with, they’ll be a resource for you at any time, but especially when you’ve got questions, or are feeling uncertain or anxious.
If your financial advisor is an experienced Certified Financial Planner professional, they’ll be able to listen to your questions and concerns, incorporate them into your financial plan, and help you understand how the current economic and financial environment will impact you.
Your financial advisor can also work together with you and your tax and estate planning professionals to keep you on track to a secure and comfortable financial future, while ensuring that you’re protected from risks that could jeopardize your plan.