5 planning topics to bring up with clients in 2023

January 2, 2023 5:26 PM

As with so many things in life, the new year is a time for investors to take stock of their financial health to gauge what's going well and what could stand improvement.

It's also a time when financial advisors can prove particularly useful to clients. A holiday break from the daily hustle and bustle can afford planners and investors a rare opportunity to contemplate their long-term plans. If well-timed and presented in the right way, a small nudge from a trusted advisor now can make a big difference for a client's future.

Here, according to Morningstar, AARP and other groups, are five topics advisors should consider bringing up with investors who are doing a bit of reflecting on their finances in the new year.

Portfolio review

It's not necessarily a good idea for clients to be checking their investments every day, especially following a year that was as brutal for stock and bond markets as 2022. Still, the Chicago-based financial services firm Morningstar says annual reviews can reveal portfolio deficiencies that advisors are specially positioned to remedy.

Christine Benz, Morningstar director of personal finance, said one thing to look for is how much of your clients' salaries are being saved or invested. For many, 15% is a good goal. She recommends online services like T. Rowe Price's Retirement Income Calculator and Vanguard's Retirement Nest Egg Calculator to help gauge if your clients are on track to retire on time.

The beginning of the year is also a good time to see how close clients are sticking to their investing plans and recommend adjustments when needed. In a year when both stocks and bonds tanked, chances are slim that clients will need to rebalance a 60/40 portfolio — with 60% of the money in stocks and 40% in bonds. But if the bond market recovers next year, as some predict it will do, then advisors might want to prepare their clients for the possibility that they will want to shift some of those gains into stocks.

The AARP, an interest group representing Americans 50 and older, also recommends looking into medium-term Treasury bonds and high-interest savings accounts.

Revisit retirement contributions

The AARP says 2023 will be a golden opportunity for savers to put money away for retirement.

Even before Congress's adoption on Dec. 23 of the SECURE 2.0 changes to U.S. retirement laws, savers were set to enjoy favorable policies in 2023. The maximum amount they can contribute to a 401(k) plan is scheduled to rise to $22,500, up from $20,500. Savers 50 or older can also put in an additional 7,500 in "catch-up" contributions. The limits for Individual Retirement Accounts are likewise going up, to $6,500 for people under 50 and $7,500 for those above. April 18 is the deadline for contributing to an IRA for 2022.

Rachel Elson, a certified financial planner in San Francisco, tells the AARP that clients should make sure they have enough money to pay for present-day expenses before putting away so much for retirement, however. The penalties for taking money out of a 401(k) before age 59 ½ are steep — usually 10% of the amount withdrawn.

SECURE 2.0 promises to make saving for people nearing retirement even easier. For investors aged 60 to 63, the maximum catch-up contribution will be raised to $10,000. But that won't happen until 2025. But for those who can afford to save now, says the AARP, there's no reason to wait.

Setting goals

The beginning of a new year is, of course, a common time to revisit old goals and set new ones.

Just as a person might resolve to eat healthier and go to the gym, so might clients benefit from devoting themselves to spending less, and investing and saving more. The investment-management company TrustPoint says a new year's resolution can include everything from short-term goals like paying off credit card debt to long-term ones like living by a budget or portfolio plan or saving for a child's college education. The nonprofit financial services group GreenPath notes that people with good credit can transfer debt from high-interest to low- or zero-interest cards for a fee. TrustPoint says other goals could include refinancing a mortgage — although perhaps not at a time when interest rates remain high — or even paying it off.

Now's also a time to talk to clients about what they wanted to do in 2022 but perhaps couldn't because of constrained finances. Was there a vacation they had to skip? If so, what could they do to make sure it happens in 2023?

Emergency fund

Another priority to bring to clients' attention is emergency savings.

Morningstar recommends savers keep enough money on hand to cover anywhere from three to six months of expenses to protect against job losses, natural disasters or other unexpected events. People who earn a lot, have unsecure sources of income or are the prime earners for their households should try to stash away even more.

Unfortunately, says GreenPath, only about 23% of Americans have emergency savings. What are some ways clients can look to set more money aside? One good way, according to the AARP, is to review all your outstanding subscriptions and memberships — to streaming services, cable TV, gyms and publications — and consider canceling any you don't use. Similarly, the start of the year is also a good time to review how much clients are paying for fund management, trades and advice. The fewer surprises there are with these expenses, the better it usually is for everyone.

The AARP encourages looking out for instances of what it deems "lifestyle creep." This is a tendency to let good money-saving habits — such as buying store brands instead of name brands and using coupons — go by the wayside over time.

Taxes, taxes, taxes

With the April 18 tax deadline only a few months away, the new year is also a good time to help clients get their tax houses in order.

Strictly speaking, financial advisors are not tax experts, and investors might still want to consult a certified preparer for specific advice. Still, advisors can at least help clients know what to look for when they might be considering different tax strategies.

For one, planners should remember that gains from stocks are often taxed at capital gains rates whereas money from bonds is taxed as regular income. That can have all sorts of implications for which mixture of assets clients should be holding in tax-deferred funds like 401(k)s.

Morningstar, meanwhile, notes the standard deduction will be rising again next year. It will be $12,950 for individuals for the 2022 tax year and $25,900 for married couples, up from $12,550 and $25,100 respectively. Those numbers will play a big role in helping clients decide if they will want to itemize their deductions. For those who do, now is also a good time to review their charitable contributions.

Mitchell Kraus, a certified financial planner from Santa Monica, California, tells the AARP that he recently found that most of his clients weren't getting the full tax benefit of their charitable giving. Many were taking the standard deduction when they shouldn't have been. Others were failing to take advantage of a rule that lets people 70 ½ or older donate as much as $100,000 from an IRA.

Morningstar says the 1099s and W2s that come in the mail around tax time also provide a good snapshot of a client's current financial state. If the numbers have increased from one year to the next, how much of that additional money can be invested?