HCR Wealth Advisors 2021 Financial Review: Are You Sure You’re Ready?

It’s 2021 and there are new occupants in the White House. That alone is reason enough to do a financial review as each new year brings ample reason to review where your finances stand. After all, 2020 brought the turmoil of the pandemic and now the hope of the vaccines. What no one, Including HCR Wealth Advisors, can say is how things will evolve from here. So, knowing exactly where you stand financially has added value.

Add to that a new administration.

What will be the impact of the new administration?

Each administration has its priorities. Your questions might include:

  • What are its priorities in terms of what gets done first?
  • When will changes be implemented, if at all?
  • What will the campaign promises look like when implemented?

Here are some of the areas HCR Wealth Advisors has identified where change could affect the premises — and performance — of your retirement plans and your investments:

Adopting new policies — How will the Biden Administration’s policiesimpact GDP? How will markets be affected? The Federal Reserve will adopt specific monetary and fiscal strategies; how will those changes impact your savings and investments? What other agencies could make significant shifts in direction? Could they affect specific sectors? Positively or negatively?

Adding or removing regulations — The prior administration removed a large number of regulations. Which will be put back on? How will the businesses you’ve invested in operate in the new environment? What about the businesses you own, especially those that may have been hurt by the pandemic? And are there any regulations that might be removed?

Changes in taxation — The topic of taxes was raised often during the presidential campaign. How will personal income tax rates and brackets be adjusted? Will taxes on qualified dividends and long-term capital stay the same? Will estate and gift exemptions be lowered from 2020’s $11.58 million to the rumored $3.5 million? On inherited assets, will the basis step-up rules be changed? What about 401(k)s and IRAs? Will significant changes be introduced to encourage overall retirement savings?

What yearly financial housekeeping tasks should you do?

Understand your cash flow and pay yourself first — Three elements make up your cash flow’s foundation: after-tax income, expenses and savings. When HCR Wealth Advisors watched the COVID-19 pandemic disrupt economies worldwide, a spotlight was placed on the importance of having cash savings and an emergency fund — the emergency funds that financial advisors everywhere have promoted year after year.

The most effective strategy to ensure you have the savings you need for emergencies is to define your goal and how much you will contribute each income period, whether it’s weekly or monthly. When money comes in, pay yourself first until you reach your savings goal. What is left is what gets allocated to expenses and discretionary spending. (It’s that important.)

Review your withholding — 2020 was a tumultuous year for wage earners. You may have changed or lost your job, or you may have joined the work-from-home universe. And you may have benefitted from unemployment payments and not be familiar with their tax implications.

Whichever the case, review if you withheld enough in 2020 and figure out what lessons can be learned for this coming year. Withhold too little, and you could face penalties; withhold too much, and you’re making an interest-free loan to the U.S. Treasury.

Review your estate plan — As HCR Wealth Advisors witnesses day in and day out, estate planning is not just for the rich and famous. Whatever assets you have, you will make it much more difficult on those you leave behind without some estate planning. If you don’t have an estate plan, prepare one by following the simple steps and documents that everyone should have in place.

If you do have a plan, review and update your will, healthcare directive, healthcare power of attorney and financial power of attorney as needed. Think about whether anything has changed that could warrant updating your beneficiary designations on retirement accounts, life insurance policies and annuities. And consider whether a trust would benefit your estate plan.

Review your insurance coverage — The COVID-19 pandemic has taught everyone that no one is free from “unseen” vulnerabilities. And that insurance can help mitigate the financial impact of an adverse event on you and your loved ones.

What actions does HCR Wealth Advisorsrecommend? Take out and read your health, life, long-term disability, property-casualty and homeowner’s insurance policies. Do you understand what is covered and what is not? Do they match your needs in light of your new awareness of why you have insurance policies?

And do you want to consider adding long-term care insurance and a personal liability umbrella policy? The goal is not to be over-insured but to be correctly insured.

Review your credit report — Your credit score has an impact on more and more of your financial transactions, everything from your home and auto insurance rates to whether a landlord will rent to you. Besides learning how to improve your scores (if they’re lower than you would like), you also need to ensure that your credit report is correct. HCR Wealth Advisors can confirm that errors are surprisingly common.

AnnualCreditReport.com works with the three major credit-reporting agencies: Equifax, Experian and TransUnion. Federal law requires each of those to give you a free credit report every 12 months. But, because of Covid-19, those agencies are offering free weekly online reports through April 2021. Do take advantage of their generous offer.

Review retirement account contributions — The new year is an opportunity to see how much you contributed to your retirement accounts in 2020 — and to top off the contributions you’re allowed to make until April 15. Although you can no longer contribute to your 401(k) for 2020, check how much your employer will match and plan to contribute at least that much in 2021; it’s the equivalent of free money.

HCR Wealth Advisors also suggests looking at the asset allocation in all of your retirement accounts and thinking about changing those that are underperforming or having high costs. Look into SEP-IRAs, solo 401(k)s and profit-sharing plans if you are self-employed. And open an IRA — traditional or Roth — if you have extra cash that’s not invested and not needed for an emergency fund.

This chart highlights the various contribution limits for 2020 and 2021.

Contribute to Health Savings Accounts (HSAs) — If you are eligible through your health insurance plan to participate in an HSA, contributions are tax-deductible, and any earnings in the account are tax-free. You will not be taxed on withdrawals from HSAs if the funds are used to pay for qualified medical expenses.

The HSA contribution deadline for 2020 is April 15, without extensions. This chart outlines the contribution limits for 2020 and 2021.

What is your path going forward?

Once you have reviewed all the relevant parts of your finances, updated them and factored in the changes expected in the coming year, one thing should be clear: financial planning and retirement planning are not entirely “set it and forget it.” You don’t want to be overreacting in the short-term, but some course correction may be required occasionally for the long-term.

If you think the external changes justify a second look at your planning to be sure you’re still on track, the team at HCR Wealth Advisors would be a great resource for you.

Originally published at https://financemag.org on February 5, 2021.

*This article is for informational purposes only and should not be considered investment advice.