7 planning lessons learned

Since the start of the global pandemic, many people in or nearing retirement have expressed interest in learning about ways to optimize their planning during periods of uncertainty. Below, we explore some of the key planning themes discussed by TIAA wealth advisors and subject matter experts over the past six months, including steps you can take to remain on track toward your goals.

Anchor yourself in a plan

"Perhaps the number one takeaway from 2020 is that the world can change in an instant," said Shelly Eweka, CFP®, ChFC®, a Financial Planning Strategy Director at TIAA.
As we enter a new year, Eweka believes it’s important to reflect on what you experienced in 2020 and the impact those experiences had on your life. What has changed for your family, career or lifestyle?
"Re-evaluating your goals and priorities is an important step for making sure you can continue to protect what’s most important to you," she said. "That includes reviewing your investment strategy, as well as the safeguards in place to protect your income, loved ones and property."
While we don’t know what lies ahead, or how soon life will return to normal, these considerations are all part of the planning process, which is designed to help you navigate change in the months and years ahead. A key benefit of the planning process is the ability to stress test your strategy for extreme circumstances and events, like we saw in February and March 2020, when the S&P 500 fell 34%.
"These events are built into the more than 500 trials we run when we create your plan," Eweka said. "That allows us to identify gaps or vulnerabilities in your planning and address them before events like this occur."

Lesson learned

Anchoring yourself in a plan provides an opportunity to prepare for unforeseen, unexpected or negative events in advance. Planning helps to ensure that the amount of risk you’re taking is fully aligned with your goals, time frame and risk tolerance, and you’re able to quickly make adjustments to accommodate changing circumstances to remain on course toward your goals.

Tie a purpose to each asset you own

According to Daniello, one of the most important steps you can take during periods of uncertainty is to review your asset location strategy with your advisor.
“Using our asset location worksheet, we connect your goals to your time horizon and evaluate the purpose of each asset you own,” Daniello said. “This helps to determine which levers you can pull now to better protect your assets and remain on course toward your goals.”
Reviewing the location of your assets is beneficial because it helps to ensure:
  • You have the right kind of asset in the right account
  • Each asset has a purpose in your overall financial plan
  • You're using smart strategies to help reduce the impact of taxes and market volatility
For example, if you’re retired and drawing income from your investment portfolio, an asset location review will reveal if it makes more sense to draw from other sources, such as emergency savings or cash reserves, during periods of increased market volatility.

Lesson learned

Understanding the purpose of each asset you own can help to avoid locking in losses on long-term investment holdings, especially during periods of ongoing market turbulence.

Create a buffer

According to TIAA Chief Planning Strategist Dan Keady, CFP®, your plan not only provides a valuable roadmap for the future but a structure you can lean on to buffer, secure and optimize your assets as your personal circumstances and market conditions change.
“Many people have found extra money in their budgets due to spending more time at home,” Keady said.
These extra savings can help build up liquid assets so they’re available to you in instances like we saw in March, when asset prices fell rapidly. Additional savings can also be used to pay down outstanding credit card debt.
“Remember, low savings rates or cash reserves plus high credit card debt lead to financial fragility,” Keady said. “So reviewing your cash flow is critical in difficult times.”
Many retirees may choose to waive their required minimum distributions (RMDs) in 2020, thanks to a provision under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020. According to Keady, if you use emergency savings for your short-term income needs this year, instead of drawing down on your retirement plan, you may be able to get by with less money from savings because you've already paid taxes on your savings account assets.
“Remember, when you draw down on traditional retirement accounts, those distributions are subject to taxes,” Keady said. “Consider if it makes sense to take that money from emergency savings this year instead.”
For example, if you take a $100,000 distribution from your retirement account to satisfy current income needs, you need to pay taxes on that amount now. Let’s say you net $65,000 on that distribution after taxes. Consider if it would make more sense to take the $65,000 you need from savings instead, since you’ve already paid taxes on that income. Assuming you have adequate cash reserves, that could help reduce your 2020 tax bill and allow the $100,000 you would have normally taken as an RMD to continue generating earnings in your retirement account.

Lesson learned

Creating a buffer is critical for helping to preserve long-term assets during periods of uncertainty. Whether you’re in or nearing retirement, consider adding to current cash reserves if you find you’re spending less this year.
To learn more about asset protection during turbulent times, read Buffer, secure, optimize and "CARE" for your assets.

Build an income floor

Guaranteed income sources provide another effective way to buffer long-term assets subject to market fluctuations.
“Many people weren’t really focused on guaranteed income over the course of the recent bull market, but are thinking about it now,” Keady said. “When we talk about lifetime income, we’re talking about creating a dependable income stream that you can’t outlive using your various income-generating assets in retirement.”
These include Social Security, a pension (if you have one) and fixed annuities, which provide guaranteed income.1 These income sources combine to create a foundation to ensure your essential needs are met for food, shelter, clothing, transportation and healthcare over a period of 20, 30 or more years in retirement.

Lesson learned

Adequate sources of guaranteed income in retirement can help tamp down emotional reactions during times of increased market volatility and avoid cementing losses in long-term assets. Your advisor can help you understand what income is supported by your plan and whether you need to adjust your income needs.
To learn more about lifetime income planning, listen to our podcast: How will you pay yourself in retirement?

Ensure the right documents are in place

“We frequently talk about risk management in the context of the capital markets, but managing risk encompasses far more than your investment strategy,” said TIAA Wealth Planning Strategies Director Colleen Carcone, CFP®.
Carcone cites the coronavirus as an example of how quickly events outside of our control can impact our health, lifestyle and financial goals in ways we could not have imagined before. According to Carcone, the pandemic has led to a growing number of people reassessing their goals, values and priorities in recent months.
“I’ve spoken to a number of clients in recent weeks who have engaged in conversations with their estate planning attorneys and wealth advisors to review their legacy plans and goals, and think about ways to preserve wealth to help future generations who may face a similar crisis.”
Carcone points to another important aspect of risk management: making sure you have the right documents in place.
“The pandemic has brought discussions about who will act on your behalf if you’re incapacitated to the forefront of family discussions,” Carcone said. “Who has the legal authority to act on your behalf? Who is authorized to receive updates on your condition if you’re hospitalized? What are your wishes when it comes to palliative or end of life care? There may be some things out of your control right now, but your estate plan isn’t one of them.”
Having the right documents in place, beginning with a living will, durable powers of attorney and healthcare directives, provides legal authority to those you trust to act on your behalf, ensuring your wishes are met during your lifetime and your legacy is honored after you are gone.

Lesson learned

Planning enables you to prepare for both expected and unexpected events at every stage of your life, from naming a guardian for your minor children, to transferring assets to your grandchildren in the most tax-efficient way. Begin by ensuring the right documents are in place and up-to-date to protect your interests and loved ones.

Be nimble

Flexibility has been a key theme throughout this unprecedented period in our history—how and where we work, shop, socialize, communicate, receive medical care, educate our children and more. According to Carcone, our planning is no exception.

“There are a number of opportunities available to help people optimize their planning, including new strategies as a result of recent legislation,” Carcone said.

If you’re charitably inclined, the CARES Act offers several opportunities to pursue your goals. For those who do not currently itemize on their tax returns, the CARES Act allows individuals to take a $300 above-the-line deduction for cash contributions to charities ($600 for married couples filing jointly). These must be cash donations made directly to an organization, so they do not apply to donations made through a donor-advised fund or by supporting organizations, or gifts of securities or other assets.

Another big change is that if you do itemize, the amount you can contribute and deduct from taxes is normally limited to 60% of your adjusted gross income. In 2020, that limitation or “cap” has been suspended.

“This provides a tremendous opportunity for people who may not have been able to itemize otherwise to do so this year,” Carcone said. “Essentially, it allows anyone who’s interested in doing so to make significant contributions in 2020, potentially offsetting 100% of their income.”

Carcone encourages those seeking ways to optimize their planning to schedule time to meet with their tax professional and financial advisor to discuss different options and strategies for maximizing income and reducing tax exposure.

“All planning decisions have tax consequences,” Carcone said. “So it’s really important that you’re talking to your advisors on a regular basis, and before you implement these or any other strategies.”

Lesson learned

Regularly reviewing your plan with your advisor helps to ensure you’re aware of any new opportunities to enhance your planning and reduce your tax exposure as laws and regulations are updated, changed or expanded.
To learn more about opportunities available under the CARES Act, listen to our podcast: The CARES Act: What’s in it for you?

Stay connected

Planning is the foundation of financial well-being, and communicating regularly with your financial advisor is essential.
“Your relationship with your advisor has never been more important,” Keady said.
That’s because your advisor has the advantage of not being emotionally connected to your money, which can be critical during periods of increased uncertainty and market instability. He encourages clients to “use your advisor as a sounding board,” especially if you’re unsure whether you’re approaching investment decision making from an emotional or rational perspective.
“A market environment marked by steep drops followed by sharp gains is unnerving for most investors,” Keady said. “Your advisor can help ground you since he or she is not emotionally attached to your money. That helps to ensure that you make informed and confident decisions based on your planning and your goals, rather than day-to-day market swings.”

Lesson learned

Staying the course doesn’t mean sitting still. Working closely with your advisor can help ensure you address vulnerabilities before they occur, have a solid foundation in place and avoid emotional decision making.
To learn about more ways to remain on course toward your goals, schedule time to meet with your TIAA wealth advisor today.

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1All guarantees are subject to the claims-paying ability of the issuer.
This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.
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