While most of us can't wait for the ball to drop next week, it's an important time to reflect on what's occurred this year from a financial planning perspective. Let's not mince words: Economic turmoil, high unemployment, unrelenting food lines, and debilitating disease ravaged the country in 2020. We learned, however, that the stock market and the broader economy serve two different populations. As of this writing, the S&P 500 index is up nearly 15% for the year, with most other averages in the same range. In this article, we look at how those planning for or in retirement can find some solace in the silver linings of the year. 

RMDs were suspended in 2020

For savers over the age of 72 with traditional IRAs or workplace retirement plans (or for beneficiaries of any age with inherited IRAs), required minimum distributions (RMDs) were suspended in 2020. RMDs are the annual requirement for people to withdraw from their pre-tax retirement accounts and to declare that withdrawal as income in the year of distribution.

Generally speaking, RMDs increase taxable income and have the potential to push you into a higher tax bracket. We all received a reprieve this year. But don't expect a repeat -- barring last-minute legislation to the contrary, RMDs will be back in 2021. 

Couple walks down a trail at sunrise.

Image source: Getty Images.

Roth conversions were (and still are) in vogue

A Roth conversion -- or the deliberate conversion of pre-tax retirement money to post-tax retirement money -- was and still is a common strategy in 2020. In addition to the aforementioned RMD suspension, many people experienced a disruption in or loss of income for the year. This means that many people had a prime opportunity to declare pre-tax money as income this year and shoehorn themselves into a lower tax bracket than normal.

For example, let's pretend you expected to earn taxable income of $200,000 this year and expected a marginal tax rate of 32%. But due to pandemic-related factors, perhaps you only earned $50,000. Not only would you be in a much lower marginal tax bracket of 22%, but there would be additional "tax space" to declare income if desired before you'd get back to 32%. By doing a Roth conversion, you'd be able to get a significant amount of money into these tax-free retirement accounts while paying 22% to 24% in taxes -- up to the $163,300 in taxable income at which the marginal tax rate returned to 32%. 

A refocus on liquidity and long-term planning

When the market crashed in March, many investors wished they were holding more cash. I don't mean to say that people should have cashed out their investments after the crash -- the exact wrong thing to do -- but I do mean to say that investors should now be much more aware for the everlasting need for cash reserves as part of their long-term financial plans. 

Cash doesn't earn much. No arguments there. But the point of holding cash is not to earn a return; it is to provide insurance and peace of mind during unexpected drawdowns (which are further unknown in length and depth). Moreover, cash can provide additional long-term opportunity if you have the nerve to invest it after a period of significant negative returns. 

Finally, many financial threats, such as unemployment and healthcare costs, were brought to the forefront this calendar year. A solid cash base serves as a shield against the worst consequences of these difficulties and provides security and safety when times are unexpectedly bad. For those already in retirement, let 2020 serve as a reminder that confounding black swan events can and do happen, and it's best to think about long-term planning in a context of what could go wrong in the future -- not just what already has. 

Use 2020 as a push for creativity

If you're reading this, you made it through the year, which is all anyone can really ask of you at this stage. It's been exhausting for everyone. But it is also a time to reflect on the ways in which we can still make the most of 2020 -- not only from a logistical perspective, but also from a learning standpoint. 

Keep strong cash reserves, buy enough insurance, and take advantage of the small tax law changes that can make your life a bit easier down the line. Get creative in your planning: If you want to work in a different capacity, untethered from an office or an employer, make it happen in 2021. If you want to take a blowout trip post-vaccination, do it. Think of 2020 as a great opportunity to think about what next year will hold. Make sure to plan for it. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.