Are you a successful, high-income earner concerned about the possibility of a recession in 2023 or 2024 and how that might impact your retirement plans? You’re not alone. With the possibility of a recession in 2023 looming, it helps to understand the potential impact on your financial future. Now is the time to consider how a potential downturn may affect your retirement planning goals.
As a Personal CFO in Brentwood, TN, I’ll provide key insights and thoughts on what other affluent investors like you should consider doing to prepare for a possible recession in the not-too-distant future.
In this blog post, we’ll explore:
- Understanding the Impact of a Recession on Retirement Plans;
- The Role of a Fiduciary Financial Advisor in Retirement Planning;
- Tax Planning Strategies to Help Protect Retirement Savings During a Recession.
- Diversification and Risk Management in Retirement Planning
We believe that you deserve to have a Personal Chief Financial Officer to help you live an amazing life of significance; a professional who understands your and your family’s financial and other vital needs.
Understanding the Impact of a Recession on Your Retirement Plans
While generally better positioned to weather economic storms, affluent families and individuals’ retirement assets are not immune from the impact of a recessionary economy. For instance:
- As a high-net-worth individual, you may have more significant exposure to the stock market and other riskier investments, which can fluctuate in value during economic downturns;
- You may face higher tax burdens as various levels of government look for ways to fund stimulus packages and social welfare programs;
- Economic conditions could impact your desired retirement date;
- You may have to alter instead of reduce your preferred standard of living.
These factors may erode the value of your portfolio and could impact and limit your ability to retire. Consequently, even affluent individuals should take proactive steps to help ensure their retirement plans remain on track during challenging economic times.
One way to help reduce the chances of a significant impact on your retirement is working with an experienced retirement planner who understands the financial impact of recessions on your equity and fixed-income investments. For instance, a skilled retirement planner in Brentwood, TN, can provide valuable insight into how a portfolio will likely perform during a downturn and recommend strategies to protect and grow your wealth. In fact, you might greatly benefit from a stress test to explore unnecessary risks you may be taking.
The Role of a Fiduciary Financial Advisor in Retirement Planning
A fiduciary financial advisor is more than just another type of professional – this type of financial advisor is legally and ethically bound to always act in your best interest. Their top priority is helping you pursue a secure and comfortable retirement without any potential conflicts of interest.
Working with a fiduciary financial advisor offers numerous benefits, especially during volatile economic conditions, such as:
- Providing financial advice that is consistent with your tolerance for risk;
- Assessing risk exposure about your stated capacity to take investment risk;
- Reviewing your investment strategies and recommending adjustments as necessary;
- Assisting with the reallocation of your 401k plan’s assets;
- Recommending investment changes for your other retirement assets (IRAs, personal accounts);
- Reviewing your estate planning needs and living trust requirements;
- Assessing how rising interest rates may impact your fixed-income investments.
Mitch Silberman, CEO and founder of Silberman Wealth Strategies, Inc., has been a wealth advisor for over 30 years. He provides high-income earners and high-net-worth individuals and their families with the leadership they need for investing their life savings – at the same time, making sure their current investment strategy produces the returns they need for a secure, comfortable retirement.
Tax Planning Strategies to Protect Retirement Savings During a Recession
Several tax planning strategies can help you minimize the impact of a recession on your retirement assets. Here are three possible tax strategies to consider during an economic recession:
- Tax-Loss Harvesting: During a recession, it’s not uncommon for the market value of an investment to decline to less than what you paid for it. Tax-loss harvesting involves selling underperforming investments to offset the capital gains you may pay when you sell appreciated investments. This strategy can lower your overall tax liability while potentially creating an opportunity to reinvest in assets with more upside potential.
- Accelerate Deductions and Defer Income: Recessions can lead to lower income levels, which might push you into a lower tax bracket. If this is the case, it may be advantageous to accelerate deductions and defer income. This means claiming deductions earlier, like making charitable donations or prepaying expenses and deferring income, such as delaying the sale of assets or receiving bonuses, until a future tax year when your overall income may be lower.
- Consider Roth IRA Conversions: If your income is lower during a recession, you could benefit from converting a traditional IRA to a Roth IRA. Converting during a lower-income year may result in paying less in taxes on the converted amount. In a down year, taxes are potentially ‘on sale’. Additionally, future qualified withdrawals from a Roth IRA are tax-free, which can be an excellent long-term tax planning strategy.
A Brentwood personal CFO, like Mitch Silberman, can help you navigate the complexities of tax planning, allowing you to focus on other aspects of your life while knowing you have a trusted advisor planning and managing your retirement savings during an economic downturn.
Diversification and Risk Management in Retirement Planning
You and your retirement planner should regularly review your portfolio holdings, especially during a recession. If some assets have decreased in value while others have increased or remained stable, it may be a good time to sell the higher-performing assets and invest more money in the underperforming assets. This reallocation strategy can help maintain the desired balance between stocks, bonds, cash, and alternative investments, reducing your risk and improving your potential for higher returns.
Fixed-income investments (bonds), can provide a valuable buffer against stock market volatility during a recession. These investments may fit well based on your risk tolerance and investment horizon. This strategy may include reallocating your portfolio from equities to bonds or fixed-income investments (governments, corporates, and municipals). Consider investing in fixed-income securities issued by foreign entities as an option.
It’s safe to say that uncertain economic times call for a heightened sense of financial preparedness, especially regarding the retirement plans of affluent individuals.
The team at Silberman Wealth Strategies is prepared to help you pursue an amazing life of significance based on a wealth management solution custom-tailored to your current circumstances, risk tolerance, and goals.
This is what we do. We help our clients:
- Take care of the people most important to them;
- Live comfortably during all of their retirement years;
- Give generously to causes they care about;
- Make a real difference in the world;
- Transfer assets to heirs and charities when the time is right.
The views stated in this piece are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Cetera does not offer direct investments in commodities. Converting from a traditional retirement account to a Roth retirement account is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. Re-balancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional. The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value
Registered Representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker/dealer and Registered Investment Adviser. Advisory services also offered through SILBERMAN WEALTH STRATEGIES, INC. Cetera is under separate ownership from any other named entity. Located at 320 SEVEN SPRINGS WAY STE 250, BRENTWOOD, TN 37027
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Some IRA’s have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney. Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty. A diversified portfolio does not assure a profit or protect against loss in a declining market.