Your Annual Financial Planning Checklist for High Net Worth Individuals and Families
As a high net worth individual or family, staying on top of your finances is crucial for preserving and growing your wealth. An annual financial planning checklist can help ensure you're making the most of your assets and minimizing potential risks. In this comprehensive guide, we'll walk you through the essential steps to take each year to optimize your financial well-being.
Review Your Investment Portfolio
The first step in your annual financial planning is to review your investment portfolio. As a high net worth individual, your portfolio likely includes a diverse range of assets, from stocks and bonds to real estate and alternative investments. Evaluate your holdings and consider whether you need to rebalance your portfolio to maintain your desired asset allocation.
It's also essential to assess the performance of your investments over the past year.
Compare your returns to relevant benchmarks and consider whether any underperforming assets should be sold or replaced. Keep in mind that while past performance doesn't guarantee future results, consistently underperforming investments may indicate a need for change.
Assess Your Risk Tolerance
Your risk tolerance can change over time, depending on factors such as your age, financial goals, and personal circumstances. As part of your annual financial planning, reassess your risk tolerance to ensure that your investment strategy aligns with your current situation.
Consider how much volatility you're comfortable with and whether you're adequately diversified across different asset classes and sectors. If your risk tolerance has changed, work with your financial advisor to adjust your portfolio accordingly.
Review Your Estate Plan
Estate planning is a crucial aspect of financial planning for high net worth individuals and families. Your estate plan mayinclude a will, power of attorney, healthcare directive, and trusts if applicable. Review these documents annually to ensure they still reflect your wishes and that all beneficiary designations are up to date13.
If you've experienced any significant life changes, such as a marriage, divorce, or the birth of a child, you may need to update your estate plan accordingly. Consult with an estate planning attorney to ensure your plan is comprehensive and tax-efficient20.
Maximize Tax-Advantaged Accounts
As a high net worth individual, minimizing your tax liability is key to preserving your wealth. One way to do this is by maximizing contributions to tax-advantaged accounts such as 401(k)s, IRAs, and Health Savings Accounts (HSAs)17.
For 2023, the contribution limit for 401(k)s is $22,500, with an additional $7,500 catch-up contribution allowed for those aged 50 and older. IRA contribution limits are $6,500, with a $1,000 catch-up contribution for those 50 and older17. By maximizing these contributions, you can reduce your taxable income and grow your wealth tax-deferred or tax-free.
Consider Tax-Loss Harvesting
Tax-loss harvesting involves selling investments that have declined in value to offset capital gains and potentially reduce your tax liability. By realizing losses, you can counterbalance realized gains, effectively deferring or eliminating taxes on those gains.
However, tax-loss harvesting can be complex, especially for high net worth individuals with diverse portfolios. Working with a financial advisor or tax professional can help to develop a tax-loss harvesting strategy that aligns with your overall financial plan.
Review Your Insurance Coverage
As your wealth grows, so does your potential liability. Regularly review your insurance coverage to ensure you're adequately protected against risks such as property damage, personal liability, and professional liability16.
In addition to property and casualty insurance, consider whether you have sufficient life insurance coverage to protect your family's financial future. For high net worth individuals, life insurance can also play a role in estate planning by providing liquidity to pay estate taxes and other expenses16.
Assess Your Debt
While high net worth individuals may have less debt than the average person, it's still important to regularly assess your debt obligations. Review any outstanding mortgages, business loans, or other debts and consider whether refinancing or consolidation could save you money13.
Keep in mind that not all debt is bad. Strategic use of debt, such as borrowing to invest in a business or real estate, can potentially enhance your wealth if managed responsibly13.
Plan for Charitable Giving
Charitable giving not only supports causes you care about but can also provide tax benefits for high net worth individuals. As part of your annual financial planning, consider whether you want to make any charitable contributions and how to structure them most effectively14.
Options for charitable giving include outright gifts of cash or appreciated assets, donor-advised funds, and charitable trusts. Each option has its own tax implications and benefits, so consulting with a financial advisor or tax professional can help to determine the best strategy for your situation14.
Review Your Business Structure
If you own a business, the structure of your business can have a significant impact on your personal finances and tax liability. Annually review your business structure to ensure it's still the most appropriate option for your needs20.
For example, if you're currently operating as a sole proprietorship or partnership, consider whether incorporating or forming an LLC could provide liability protection and tax benefits. Consult with a business attorney and tax professional to evaluate your options20.
Evaluate Your Retirement Plan
Even if retirement is still years away, it's important to regularly evaluate your retirement plan to ensure you're on track to meet your goals. Review your current retirement savings and projections, and consider whether you need to adjust your contributions or investment strategy17.
If you're nearing retirement, start thinking about how you'll generate income from your assets. Consider factors such as your expected expenses, desired lifestyle, and potential healthcare costs. Work with a financial advisor to develop a comprehensive retirement income plan17.
Plan for Long-Term Care
As you age, the likelihood of needing long-term care increases. Long-term care can be expensive, with costs often exceeding $100,000 per year. As part of your annual financial planning, consider how you'll pay for potential long-term care needs16.
Options include self-funding, long-term care insurance, and hybrid life insurance policies with long-term care riders. Evaluate your options and consider which strategy best fits your financial situation and risk tolerance16.
Review Your Credit Report
Even if you don't rely on credit, it's important to regularly review your credit report for errors or signs of fraud. You're entitled to one free credit report from each of the three major credit bureaus annually13.
Review your report for any inaccuracies or suspicious activity, and report any issues to the credit bureau immediately. Maintaining good credit is important for financial flexibility and can also impact your insurance rates and ability to secure business financing13.
Communicate with Your Family
Financial planning isn't just about numbers; it's also about communicating your values and wishes to your loved ones. As part of your annual financial planning, have open and honest conversations with your family about your financial goals, estate plan, and philanthropic intentions19.
Consider involving your children in financial discussions from an early age to help them develop good money habits and understand your family's financial philosophy. If you have a complex estate or business, consider holding regular family meetings with your financial advisors to ensure everyone is on the same page19.
Seek Professional Advice
Financial planning for high net worth individuals and families can be complex, with numerous tax, legal, and investment considerations. Don't hesitate to seek professional advice to ensure you're making informed decisions and optimizing your financial strategy18.
Work with a team of trusted advisors, including a financial planner, tax professional, estate planning attorney, and insurance specialist. Together, they can help you navigate the complexities of managing substantial wealth and achieving your long-term financial goals15.
The Bottom Line
Annual financial planning is essential for high net worth individuals and families looking to preserve and grow their wealth. By reviewing your investment portfolio, assessing your risk tolerance, and evaluating your tax, estate, and insurance strategies, you can make informed decisions and stay on track to achieve your financial objectives.
Remember, financial planning is an ongoing process, not a one-time event. By making it a priority to review and adjust your plan annually, you can ensure that your wealth is working for you and your loved ones now and in the future.
References
13 Six Tips To Help Organize Your Family Finances - Forbes
14 Estate planning for high-net-worth and ultra-high-net-worth individuals
15 Advanced Financial Advisor Tools to Supercharge Your Practice
16 11 Financial Moves Every New Parent Should Make - Forbes
17 A Retirement Planning Guide for High Net Worth Individuals
18 The High-Net-Worth Client: Position Yourself to Check Their Boxes
19 Here Are Top Tips For Family Financial Planning - Forbes
20 A Year-End Tax Planning Checklist for High-Net-Worth Individuals
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.
Your Annual Financial Planning Checklist for High Net Worth Individuals and Families
As a high net worth individual or family, staying on top of your finances is crucial for preserving and growing your wealth. An annual financial planning checklist can help ensure you're making the most of your assets and minimizing potential risks. In this comprehensive guide, we'll walk you through the essential steps to take each year to optimize your financial well-being.
Review Your Investment Portfolio
The first step in your annual financial planning is to review your investment portfolio. As a high net worth individual, your portfolio likely includes a diverse range of assets, from stocks and bonds to real estate and alternative investments. Evaluate your holdings and consider whether you need to rebalance your portfolio to maintain your desired asset allocation.
It's also essential to assess the performance of your investments over the past year.
Compare your returns to relevant benchmarks and consider whether any underperforming assets should be sold or replaced. Keep in mind that while past performance doesn't guarantee future results, consistently underperforming investments may indicate a need for change.
Assess Your Risk Tolerance
Your risk tolerance can change over time, depending on factors such as your age, financial goals, and personal circumstances. As part of your annual financial planning, reassess your risk tolerance to ensure that your investment strategy aligns with your current situation.
Consider how much volatility you're comfortable with and whether you're adequately diversified across different asset classes and sectors. If your risk tolerance has changed, work with your financial advisor to adjust your portfolio accordingly.
Review Your Estate Plan
Estate planning is a crucial aspect of financial planning for high net worth individuals and families. Your estate plan mayinclude a will, power of attorney, healthcare directive, and trusts if applicable. Review these documents annually to ensure they still reflect your wishes and that all beneficiary designations are up to date13.
If you've experienced any significant life changes, such as a marriage, divorce, or the birth of a child, you may need to update your estate plan accordingly. Consult with an estate planning attorney to ensure your plan is comprehensive and tax-efficient20.
Maximize Tax-Advantaged Accounts
As a high net worth individual, minimizing your tax liability is key to preserving your wealth. One way to do this is by maximizing contributions to tax-advantaged accounts such as 401(k)s, IRAs, and Health Savings Accounts (HSAs)17.
For 2023, the contribution limit for 401(k)s is $22,500, with an additional $7,500 catch-up contribution allowed for those aged 50 and older. IRA contribution limits are $6,500, with a $1,000 catch-up contribution for those 50 and older17. By maximizing these contributions, you can reduce your taxable income and grow your wealth tax-deferred or tax-free.
Consider Tax-Loss Harvesting
Tax-loss harvesting involves selling investments that have declined in value to offset capital gains and potentially reduce your tax liability. By realizing losses, you can counterbalance realized gains, effectively deferring or eliminating taxes on those gains.
However, tax-loss harvesting can be complex, especially for high net worth individuals with diverse portfolios. Working with a financial advisor or tax professional can help to develop a tax-loss harvesting strategy that aligns with your overall financial plan.
Review Your Insurance Coverage
As your wealth grows, so does your potential liability. Regularly review your insurance coverage to ensure you're adequately protected against risks such as property damage, personal liability, and professional liability16.
In addition to property and casualty insurance, consider whether you have sufficient life insurance coverage to protect your family's financial future. For high net worth individuals, life insurance can also play a role in estate planning by providing liquidity to pay estate taxes and other expenses16.
Assess Your Debt
While high net worth individuals may have less debt than the average person, it's still important to regularly assess your debt obligations. Review any outstanding mortgages, business loans, or other debts and consider whether refinancing or consolidation could save you money13.
Keep in mind that not all debt is bad. Strategic use of debt, such as borrowing to invest in a business or real estate, can potentially enhance your wealth if managed responsibly13.
Plan for Charitable Giving
Charitable giving not only supports causes you care about but can also provide tax benefits for high net worth individuals. As part of your annual financial planning, consider whether you want to make any charitable contributions and how to structure them most effectively14.
Options for charitable giving include outright gifts of cash or appreciated assets, donor-advised funds, and charitable trusts. Each option has its own tax implications and benefits, so consulting with a financial advisor or tax professional can help to determine the best strategy for your situation14.
Review Your Business Structure
If you own a business, the structure of your business can have a significant impact on your personal finances and tax liability. Annually review your business structure to ensure it's still the most appropriate option for your needs20.
For example, if you're currently operating as a sole proprietorship or partnership, consider whether incorporating or forming an LLC could provide liability protection and tax benefits. Consult with a business attorney and tax professional to evaluate your options20.
Evaluate Your Retirement Plan
Even if retirement is still years away, it's important to regularly evaluate your retirement plan to ensure you're on track to meet your goals. Review your current retirement savings and projections, and consider whether you need to adjust your contributions or investment strategy17.
If you're nearing retirement, start thinking about how you'll generate income from your assets. Consider factors such as your expected expenses, desired lifestyle, and potential healthcare costs. Work with a financial advisor to develop a comprehensive retirement income plan17.
Plan for Long-Term Care
As you age, the likelihood of needing long-term care increases. Long-term care can be expensive, with costs often exceeding $100,000 per year. As part of your annual financial planning, consider how you'll pay for potential long-term care needs16.
Options include self-funding, long-term care insurance, and hybrid life insurance policies with long-term care riders. Evaluate your options and consider which strategy best fits your financial situation and risk tolerance16.
Review Your Credit Report
Even if you don't rely on credit, it's important to regularly review your credit report for errors or signs of fraud. You're entitled to one free credit report from each of the three major credit bureaus annually13.
Review your report for any inaccuracies or suspicious activity, and report any issues to the credit bureau immediately. Maintaining good credit is important for financial flexibility and can also impact your insurance rates and ability to secure business financing13.
Communicate with Your Family
Financial planning isn't just about numbers; it's also about communicating your values and wishes to your loved ones. As part of your annual financial planning, have open and honest conversations with your family about your financial goals, estate plan, and philanthropic intentions19.
Consider involving your children in financial discussions from an early age to help them develop good money habits and understand your family's financial philosophy. If you have a complex estate or business, consider holding regular family meetings with your financial advisors to ensure everyone is on the same page19.
Seek Professional Advice
Financial planning for high net worth individuals and families can be complex, with numerous tax, legal, and investment considerations. Don't hesitate to seek professional advice to ensure you're making informed decisions and optimizing your financial strategy18.
Work with a team of trusted advisors, including a financial planner, tax professional, estate planning attorney, and insurance specialist. Together, they can help you navigate the complexities of managing substantial wealth and achieving your long-term financial goals15.
The Bottom Line
Annual financial planning is essential for high net worth individuals and families looking to preserve and grow their wealth. By reviewing your investment portfolio, assessing your risk tolerance, and evaluating your tax, estate, and insurance strategies, you can make informed decisions and stay on track to achieve your financial objectives.
Remember, financial planning is an ongoing process, not a one-time event. By making it a priority to review and adjust your plan annually, you can ensure that your wealth is working for you and your loved ones now and in the future.
References
13 Six Tips To Help Organize Your Family Finances - Forbes
14 Estate planning for high-net-worth and ultra-high-net-worth individuals
15 Advanced Financial Advisor Tools to Supercharge Your Practice
16 11 Financial Moves Every New Parent Should Make - Forbes
17 A Retirement Planning Guide for High Net Worth Individuals
18 The High-Net-Worth Client: Position Yourself to Check Their Boxes
19 Here Are Top Tips For Family Financial Planning - Forbes
20 A Year-End Tax Planning Checklist for High-Net-Worth Individuals
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.
