Over the past few months we’ve seen many hardships caused by the COVID-19 outbreak. Furloughs, record unemployment, businesses not being open as much — and less traffic in and out of them. A lot of families are seeing less income in their household due to this pandemic. Because of this, I wanted to share some ideas and information to help others navigate through this time, including the options that may be available for pandemic financial assistance.
Push back those bills
One of the best ways to free up cash is simply not spending it on anything that isn’t essential. Take some time to prioritize your bills while keeping a close eye on the dollars going into and out of your accounts. The difference between what bills need to be paid right away and which can wait has shifted significantly for many of us, making prioritization a key. Remember that most major credit card companies, lenders, and utilities have all offered some sort of accommodation or additional aid for those who are facing COVID-related hardships.
Pandemic financial assistance
The coronavirus aid law, also known as the CARES Act, bolsters the unemployment insurance benefits for affected workers. It includes a $600 per week increase for each recipient for up to 4 months. What I’m trying to say us that you shouldn’t have any qualms about applying for unemployment if you need it. One way to view it is that those are the funds you earned during the many periods of your life when you were employed. Also, don’t forget about food banks and healthcare clinics who are also willing to help those in need. See here for more information on the core components of the CARES Act.
Use your emergency fund
Of all the times in history, THIS qualifies as an emergency. If you were able to build an emergency savings fund, this qualifies as a legitimate use for it. If not, any non-retirement savings you may have may be considered for use. However, be careful selling stock for cash — you may lock in losses from the receding market. If you need to do it, consider stocks for which you can get a tax loss write-off at tax time.
Use retirement savings, but with caution
Although the 10% early withdrawal penalty has been suspended for those affected by the pandemic — one of the many options for financial assistance covered by the CARES Act — other restrictions remain in place. You still have to pay income tax on most withdrawals, and your retirement could suffer by not keeping those funds invested for the future. For Roth IRAs, remember that contributions to your Roth IRA are made with post-tax dollars; you can withdraw the contributed amount at any time without paying income taxes. However, you WILL pay taxes on any earnings you pull out, so be cautious there.
401k loans
You may also consider a loan against your retirement account, if available, instead of a withdrawal. Generally, there will be no income taxes as long as you pay it back within a specific period. The good news is that you’ll be paying yourself back — with interest. In addition, the coronavirus law doubled the allowable size of 401k(k) loans to $100,000.
Credit cards: only a last resort
With high interest rates and low payment requirements, credit cards can completely derail any retirement savings you could’ve had. Credit cards can be a valuable tool in times of need, but unless you have a clear idea of how you will repay your debts — consider these your last resort.
Stay strong
Overall, I encourage you to stay strong as the world works to overcome the outbreak and move into the future. If you need financial planning advice during this time, I’d be honored to help you.
July 2020
Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
