“Am I going to be OK?”

A Mercer Advisors client asked advisor Alise Kraus this question in March. She had recently left a high-paying career to start her own small business in another state. Then the coronavirus pandemic hit, and she had to close up shop—triggering emotions that disrupted her sense of economic well-being.

Moments like this one are an ideal opportunity to revisit what’s in your long-term financial plan, Kraus shared in “3 Ways to Manage Your Wealth-Life Balance,” a recent Mercer Advisors Women and Wealth webinar.

“When we have a ‘fight-or-flight’ response happening in our brains, we aren’t going to be making rational decisions that are in our-long-term best interest,” she said. “Using your financial plan as a tool for better decision-making is a key to overall wealth-life balance.”

Together with advisor Kristen Kestel, Kraus highlighted some key challenges that may prevent women from achieving their financial goals. “We tend to take better care of others than we do of ourselves,” Kraus said. And while 95 percent of women will be the primary financial decision maker at some point in their lives, “we remain more financially vulnerable” than men, she added. For example, women accounted for 55 percent of the 20.5 million U.S. jobs lost in April 2020.¹

Women can help each other overcome these obstacles by talking more openly about money matters and practicing financial self-care, Kraus said. In that spirit, she and Kestel shared a three-step protocol for achieving wealth-life balance—which they defined as “how well your money is aligned with your goals and your values.”

STEP 1: Focus on what you can do

Tax planning is one of the most direct ways for every investor to take control of her financial future. “This isn’t just about minimizing taxes in the current year,” Kestel said. “It’s about lowering your lifetime tax bill as well.”

Within a comprehensive financial plan, your advisor can help identify opportunities to maximize the amount of assets growing in tax-deferred buckets such as a traditional individual retirement account (IRA) or a Roth IRA. Passage of the federal CARES Act in March opened even greater tax-saving opportunities for investors, she said.

Under the CARES Act, retirees and beneficiaries of inherited retirement accounts can choose not to take a required minimum distribution (RMD) this year. Forgoing the RMD not only reduces your taxable income for 2020 but also allows that money to grow tax-deferred for an extra year. Thanks to the CARES Act, whatever RMD amount that you normally would have taken from your retirement account this year can be converted to a Roth IRA with the same tax impact as if you had received the usual RMD.

Charitable giving is another potent way to reduce taxes while also benefiting the causes you believe in, Kestel said. This year, Congress increased the maximum federal income tax deduction for cash donations to registered nonprofits from 60% of the donor’s adjusted gross income (AGI) to 100% of AGI. “You and the charity can keep what would have otherwise been paid to the IRS—in effect making each dollar more valuable,” she added.

STEP 2: Focus on what matters most

Uncertainty about the current economy can also add to women’s sense of urgency around estate planning as they consider how to provide for the future needs of their loved ones. “On average, we live five years longer than our spouses,” Kestel said. “An estate plan helps ensure that our wealth-life goals are properly executed during and after our lifetimes.”

In passing the Tax Cuts and Jobs Act of 2017, Congress doubled the individual estate tax exclusion: from about $5.5 million to nearly $11.6 million for individuals and more than $23 million for married couples who file jointly. Because this legislation is likely to expire in 2026, Kestel said, “the next five years may be a critical time to do some advanced estate planning or gifting.”

She encouraged investors to talk with their advisor about choosing a strategy that most closely aligns with their specific wealth-management values and goals. “Taking a look at your estate plan will, in my experience, help you gain some  financial peace of mind,” Kestel said.

STEP 3: Focus on where you want to be

Kraus urged all women who might be experiencing financial stress amid the pandemic or feeling worried about recent market volatility to “lift your gaze” and reaffirm the pillars of their long-range financial plan. “That plan is what allows us to pivot and adjust when unexpected events happen,” she said.

If you imagine your financial plan as the car that moves you toward your goals, “the engine that powers it is your investment allocation,” Krause explained. “At Mercer Advisors, we use a scientific approach to investing that looks at cumulative returns over time.”

She added that every woman should understand three things about her investment allocation:

• How are you invested? The mix of stocks, bonds, and cash in your portfolio will largely shape your investment returns over time. Within that asset allocation, investors also need to ensure they are properly diversified across geographic regions.
• Why are you invested that way? There should be clear connections between your investment selections, your tolerance for risk, and your long-range objectives. Revisiting those choices with your financial advisor can help ease stress and lead to better decision-making.
• Do you believe in that plan? Myriad events and circumstances in life can potentially take our focus off of the big picture for retirement, estate planning, or other future goals. “If you find yourself asking, ‘Am I going to be OK?’ then talk with your advisor,” Kraus said. “What we love to do as advisors is help you shut off that fight-or-flight response by looking at your financial plan and thinking longer term.”

Planning creates calm in the storm

Kestel and Kraus concluded by urging participants to share at least one insight from the session with other women in their circle.

“When we can remain financially secure even in the face of uncertainty, that’s what wealth-life balance is all about,” Kraus said. “Talking with each other about money is one of the most important things we can do to move the needle ahead for all of us as women.”

Replay the full “Wealth-Life Balance” webinar here.

Additional resources

Podcast: The Science of Economic Freedom – Economic Freedom for Women with Alise Kraus
Article: Are We in a ‘Shecession’?