2022 Financial Planning Trends and Their Implications

2021 was an unpredictable year of fluctuating financial planning trends. With COVID-19 still lingering on and the impact of the pandemic visible on the stock market, there were a lot of things investors experienced in 2021. Equity markets plummeted and then boomed, inflation rose to unexpected levels, and people started reevaluating their risk tolerance and investment portfolio. Further, the concept of living life well while being financially prepared for an emergency (especially health-related issues) rose to prominence. Even retirement planners reconsidered their financial plans and thought about delaying their retirement to accumulate the required sum for a comfortable non-working life. Alternatively, a large chunk of people are inclined towards taking early retirement to be able to enjoy their lives.

Irrespective of the income level, the hardest aspect in these trying times is maintaining financial stability. People with a lack of a financial plan took a hard hit during the initial stages of the COVID-19 pandemic in 2020 and much into 2021. Even today, nearly two years into the pandemic, many people are still suffering the long-term financial impacts of the health crisis. While there were significant improvements in the U.S labor market, about half of the non-retired Americans feel that the economic impact of the pandemic has made it harder for them to realize their financial goals, as reported by the Pew Research Center Survey. While one-in-ten people think their finances will not recover, nearly 44% of the survey participants hope that proper financial planning can help them improve their financial situation in three years or more. They would be able to regain their pre-COVID financial status, if not improve.

Undoubtedly, strong financial planning can help you stay focused on your goals. Moreover, with the right strategies, you can overcome any financial setback experienced during the COVID-19 peak phase. Competent financial planning can help you maintain or increase your wealth over time. But to create the right financial plan, you need to be updated about the current financial planning industry trends and market happenings. You can also consult with a professional financial advisor who can guide you on how to create a customized financial plan suited to your unique financial needs and goals.

As you progress further into 2022, it is important to be aware of some wealth management and financial planning trends:

1. Inflation is steeply rising:

Inflation has risen worldwide, with the U.S. being the biggest contributor. If you have been to the grocery store lately, you would not be able to miss the high prices. Other than that, the hike in prices is also evidently visible when you pay your medical expenses or buy a home or car. As measured by the Consumer Price Index (CPI), the annual rate of inflation in the U.S was 6.2%, the highest in three decades. Apart from CPI (the prime inflation measure), other inflation metrics have shown significant increases in the past couple of years.

Inflation has been consistently hitting the U.S economy and has impacted every American household in some form or other. There is no single reason for the rise in consumer prices. Supply chain crisis, clogged shipping ports, overstuffed warehouses, surging consumer demand, health crisis imposed by the pandemic, and more, are some of the reasons why inflation is climbing to an all-time high in the U.S. To boost the economy, the federal government introduced multiple trillion-dollar stimulus packages aiming to provide financial support to families and employers. However, in many ways, these relief packages have also contributed to the booming inflation in the country. As a consumer, you may bear the major brunt of rising inflation. Inflation can interfere with your budget, forcing you to reduce your overall spending. If your wage can keep up with the growing inflation rates, you might sail through. However, as the data suggests, general wages are not keeping up with inflation. But industries recovering from the COVID-19 pandemic effect are increasing at pace with inflation and can be a fruitful investment.

Ideally, a modest amount of inflation, such as the Federal Reserve target of 2% annually, is healthy for the economy. But, an unexpected, prolonged, and high inflation is detrimental because it erodes your purchasing power, meaning you can buy less with the same amount of money as before. When you study financial planning trends 2022, ensure you have foolproof financial plans, like the ones explained below, to handle inflation:

• Create a diversified portfolio: While creating a diversified portfolio comprising stocks, bonds, cash, and alternative assets, you should ideally aim to diversify across asset classes. This can include investing in large-cap stocks, focusing on investing in corporate bonds, etc. According to records, a well-diversified portfolio comprising stocks, foreign stocks, etc., is likely to offer inflation-protected returns in the long run. Cash and bonds generate safe returns, insufficient to give you a hedge against inflation. However, you must include these safe securities in your portfolio since they offer assured returns during periods of market volatility.
• Take a holistic view of income and assets: When assessing your financial situation, focus on your income and assets, including tangible and intangible ones. If you have any stock investments, income from Social Security, pension, retirement account balances, a home, real estate investment trusts (REITs), part-time business, and other assets include all of these in your calculation. This will help you accurately estimate your exposure to inflation risk and chalk out a financial plan to bridge the income gap

2. Taxes still consume a major share of your income:

Taxes have always been a critical constituent of any financial plan. As of 2021, there were no significant tax changes apart from 5% surtax on the adjusted gross income for people who earn more than $10 million annually. People with income over $25 million are liable to pay an additional 3% surtax. Even though there are no major tax changes expected in this financial year, taxes remain a growing concern in structuring a financial plan. The objective is to make investments that maximize your tax advantages. Here are some strategies that can help you lower your tax bill in 2022:

• Maximize contributions to tax-advantaged retirement accounts: As an investor, you can simply reduce your tax billby maximizing your contributions to tax-advantaged retirement accounts like a 401(k), IRA (Individual Retirement Account), Health Savings Account (HSA), and Roth IRAs. Some of these tax-advantaged accounts, like a 401(k), IRA, etc., give you tax benefits in the present and help reduce your taxable income. Other retirement accounts, like a Roth IRA, can offer support if you predict that your future taxes will be higher. However, these accounts have a maximum limit, which changes every year. Further, aim to tap the employer contributions in your 401(k) account.

• Reduce taxes from brokerage accounts: When you earn capital gains (as interest or dividends) through taxable brokerage accounts, you are liable to pay capital gains tax (short-term or long-term). However, smart tax-saving tactics can help you to reduce your tax outflow from brokerage accounts. Some tax-saving strategies include minimizing the turnover in taxable brokerage accounts, investing in high-income securities to create current tax liabilities in retirement accounts, and using tax-loss and tax-gain harvesting tactics to offset realized capital gains. Further, if you have a large estate, be wary about the changing estate tax laws in 2026. The prevailing TCJA (Tax Cuts and Jobs Act) laws will end by 2026, paving the way for pre-TCJA levels. Hence, if you have an estate value of $5 million or more, you can deploy effective strategies to reduce your estate tax. You could consider giving $15,000 tax-free to multiple people without exhausting your lifetime gift tax exemption. However, if you do not want to give direct gifts, you can create an irrevocable trust. If you have $20 million or more of estate value, you could consider using SLATs (Spousal lifetime access trusts) that can fix your present lifetime exemption while preserving the access to gifted assets. SLATs give the donor spouse indirect access to the gifted assets through the beneficiary spouse. Other than this, creating charitable lead trusts (CLTs) combined with a donor-advised fund (DAF) can lower your tax bill for 2022.

3. Adapt to the post-COVID world:

Among financial planning industry trends, one that is prominently affecting your life is the new way of living in the COVID era. The pandemic has led people to revise their financial goals and rethink their priorities and what’s important to them. You can reevaluate how COVID has impacted your personal life in terms of finances, time, health, and more, and accordingly modify your financial plan to suit your current goals. If the COVID pandemic has led you to think about taking early retirement, you might want to check your retirement readiness in that aspect. Early retirement will mean you need a much larger retirement corpus than before (when retiring at full retirement age or later). Further, if you decide to quit work before your full retirement age, you will not be able to claim Social Security benefits until the age of 62 years. Even if you claim benefits at 62, you will receive a much lower Social Security sum than if you waited until the age of 70. However, if you are sure you want early retirement, you would need to substitute the lack of funds through other mediums, such as taking on a part-time or full-time job. Apart from reconsidering your priorities, your post-COVID financial plan ideally should factor in the steeply rising healthcare costs in the country. The current healthcare expenses and the expected future health expenditure is creating anxiety among most retirees, even those with a sizable retirement nest egg. While you cannot predict a health emergency like COVID, you can always be prepared to handle such an unexpected crisis. One effective way to do this is to create an emergency fund that comprises a minimum of six to nine months of your living expenses. Further, investing in an HSA or opting for the right Medicare plan can drastically reduce your medical expenses. Another aspect to note in the post-COVID world is the sudden market volatility. Hence, as a wise investor, it is advisable to diversify your portfolio to combat market volatility. You could invest in stocks, bonds, cash, and alternative assets and further diversify these securities into small-cap, mid-cap, and large-cap stocks, short-duration or long-duration bonds, real estate holdings, and more. However, be sure to invest accordingly to your risk tolerance and time horizon. The objective is to be prepared for the tides to shift.

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A few tips to navigate 2022

1. Do not overdo it: 

One of the financial planning trends you can follow in 2022 is to avoid overdoing it. Do not make your financial planning hard to follow. You would want to create a financial plan that is stable yet adaptable to the changing needs and market situation over time. Further, aim to create a financial plan keeping your long-term vision in mind. Base your plan on simple ideas such as creating a diversified portfolio, avoiding investing in low credit-rated bonds, not investing heavily in small-cap stocks, etc. If you are confused about how to create a robust financial plan, please consider engaging with a professional financial advisor.

2. Make way for some desires: 

Creating a financial plan does not mean you have to live miserably. The objective is to create a frugal lifestyle, where every dollar you spend has a defined purpose. This means that you spend wisely but does not imply that you cannot fulfill your wants or desires. Instead, a sound financial plan will take care of your desires. Whether you want to travel the world, spend more time with your kids abroad, start your own retirement business, or more, everything can be included in your financial plan. Ideally, experts suggest allocating at least 30% of your budget towards fulfilling your wants, 50% towards needs, and 20% towards savings. If you regularly achieve your savings target, you can easily direct 30% of your income, which is a substantial amount, to fulfill your desires.

To summarize

2020 and 2021 have been unprecedented years affecting each of us, emotionally, physically, and financially. While 2022 might not be the perfect financial year, you can improve your financial well-being by adapting to the financial planning industry trends discussed in this article. The idea is to have a financial plan to navigate any issues that might come up during the year rather than adopt a reactive approach to handling a crisis. Using the above-mentioned financial planning trends in 2022 can help you create, grow, and sustain your wealth over time.

If you are unsure about how to plan your finances for 2022, you can use the free advisor match service to engage with a professional financial advisor, who can make you aware of current financial planning industry trends and help you create a plan that can effectively traverse any situation. Based on your requirements, the service matches you with 1-3 advisors suited to meet your financial needs and goals.

For additional information on how you can manage and grow your finances and adapt your financial plans to meet the latest financial trends, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.