New Year’s Evolution

12/20/2011 2:22 PM

12/20/2011 3:15 PM

Navigating 2011’s financial thoroughfares at times seemed akin to driving along south Charlotte’s Park Road. Smooth and problem-free one day with roadblocks and an enormous sinkhole the next. According to The Wall Street Journal, the Standard and Poor’s 500 Index had moved by 1 percent or more 62 days through the middle of October in 2011.

While market volatility may serve to unsettle even the most disciplined investors, those among us with a solid financial plan seem to be more comfortable in weathering such turbulence.

We reached out to local financial planning experts for their very best advice regarding actions you should consider taking now, coming into the New Year. Here are ten savvy moves that will help you get off to a financially healthy start in 2012.

1. Establish a financial plan you understand and trust

Having an actual plan may seem to be a no-brainer, but most of the advisers we spoke with said many people don’t have established plans, nor do they have a solid understanding of what their future financial needs may be.

Wake Forest University Schools of Business professor Sherry Jarrell says, “Some people are actually afraid to look at the balance of their retirement accounts, fearing that they have lost a significant amount. Be honest with yourself, bite the bullet and see where your accounts stand right now. Define realistic financial goals and map out a strategy to achieve them.”

Jim Lilley, vice president and senior wealth planning strategist for Wells Fargo Private Bank, recommends people have a fully coordinated plan that they understand and trust. “People who understand their plan, and trust that plan, will have an easier time weathering the storm,” says Lilley.

Merrill Edge’s David Giancola agrees. “Not taking any action at all is by far the greatest mistake people make with respect to their financial planning,” he says. “Making that first step by having a conversation with your local banker, a financial adviser or even your tax accountant is critical in securing your financial future.”

2. Project your income needs and capital requirements

According to a recent survey by MetLife regarding retirement and longevity, respondents’ biggest concern by far was not having enough income to cover essential expenses.

One way to address this concern, according to Stuart Gardner Jr., president of Charlotte Wealth Management, is to generate a retirement capital projection. “Capital projections are computer generated analyses of an individual’s assets, income and expenses,” says Gardner. “The projection relates this to how much income will be needed during retirement while taking into account inflation, life expectancy and other factors.”

This is an excellent tool to identify gaps between what’s needed and what projected assets and sources of income will yield.

3. Take advantage of historically low interest rates

Two opportunities to do this, according to Kevin O. Moran, vice president - investments and managing partner of the Andover Group at UBS, are by refinancing mortgages and entering into intra-family loans as an estate planning strategy, or establishing Grantor Retained Annuity Trusts (GRATS).

“GRATS are irrevocable trusts designed to transfer the appreciation in an asset to beneficiaries at a nominal gift tax cost,” says Moran. “Hurdle rates are at all-time lows of late, meaning assets in the trust need only grow in excess of the low hurdle rate in order to succeed in transferring wealth estate and gift tax free.”

Moran notes that while the underwriting process for loans has become more rigorous, those who are approved can substantially reduce APR with 30-year fixed rates close to 4.25 percent and even jumbo mortgages less than 5 percent.

4. Be aware of changing tax laws

The extension of the Bush tax laws “sunset” (read: expire) at the end of 2012. Moran indicates that several strategies exist for those in a position to take advantage of the generation-skipping tax exemption. According to Moran, these include using your gift tax to purchase life insurance and creating a Lifetime Credit Shelter Trust.

Lilley advises that clients need to be aware that personal income tax rates, including ordinary income, capital gains rates and taxes on dividends, are at historical lows, so discussions and coordination with their investment and tax advisers will be imperative in 2012 to make sure they are being proactive and all decisions work from a tax and investment perspective.

5. Evaluate and plan for current and future healthcare needs

LPL Financial’s branch manager, Harold Soutier Sr., says planning for healthcare needs is a major issue for people nearing retirement, though it’s often overlooked. “There are some solid resources online for people to better understand what government and supplemental programs are available,” says Soutier. He recommends both the official U.S. government site,, and the popular non-government site,, to get started.

6. Coordinate your plans

“The single biggest overlooked action I see is that people don’t coordinate their planning,” says Lilley of Wells Fargo. “When this is the case, I typically see an investment adviser doing as good a job as they can in a vacuum without any knowledge of what other advisers are doing for the same client. I see them trying to give advice without knowing what is happening in the investment accounts. I see insurance advisers working with clients without connectivity to the estate planner, so there is no coordination with the estate plan. Clients who have one central point of contact or full coordination with their advisers typically have a much more cohesive plan than those who work with each adviser one-on-one without coordination.”

7. Have enough cash on hand to avoid dipping into your portfolio

According to Lilley, people should make sure they have enough cash on hand to allow them not to have to touch their portfolios for a moderately long period of time (12-24 months). This preserves the integrity of plans that people have working for them.

“Those who need their portfolio to generate income should fully understand where their income is coming from,” says Lilley. “Most people can’t just rely on a solid bond portfolio as they could in the past, so a full understanding of all potential income streams is crucial.”

8. Revisit your plan with each change in “life events”

This is a strategy that should be employed all year, according to financial planners. Merrill Edge’s Giancola says revisiting your financial plan is a must with changes in life status such as marriage, divorce, birth of a child or a new job.

“Monitoring your progress and making adjustments as necessary,” says Giancola, “ensures your plan is in line with your changing time horizons and goals.”

9. Consider converting your IRA to a Roth IRA

UBS’s Moran says with tax rates expected to rise in the future, now may be a good time to convert your individual retirement account (IRA). “In converting an IRA to a Roth IRA,” says Moran, “investors will pay income tax on the amount converted. Going forward, however, the assets will grow tax-deferred (as they would in a "regular" IRA) and – when withdrawn – are free of income tax.”

10. Feel comfortable and confident with your advisers and their advice

How do you know if the advice you’re receiving is right for you and your situation? That’s a question worth asking annually at least.

Our experts are in clear agreement on this point. The key to confidence with financial planning is the ability to fully understand what you are being told and what the implications are behind the advice. And advice needs to pass the common-sense test.

You should never feel intimidated about asking questions or feel as if your adviser is simply pushing an investment product independent of your situation.

According to Wells Fargo’s Lilley, “An investment adviser’s first job is to make sure their client understands the advice they are giving.”

That’s advice you can take to the bank.

Entertainment Videos

Join the Discussion

Charlotte Observer is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Terms of Service