Depending on your income (not your assets), you may be receiving a stimulus check of somewhere between $1,400 and $2,800. How are people putting this money to use?
We asked the NewRetirement Facebook group and it turns out that the uses are as varied as we are individually. Many are looking to spend the money on necessities, some on niceties, and others are saving for the future.
1. What Check?
Most people, but not all will receive the stimulus. If you are doing a Roth conversion, have sold a property, or just have sizable income, then you may not qualify.
Eligibility for stimulus money is based on income limits — not net worth.
According to AARP, “Under the version of the bill that the president has signed, single adults who reported $75,000 or less in adjusted gross income on their 2019 or 2020 tax return will receive the full $1,400 payments, as will heads of household who reported $112,500 or less. Couples filing jointly who earned $150,000 or less in adjusted gross income will receive the full $2,800. The size of the payment will gradually decrease for those who earned more than those amounts, until it disappeared entirely for higher-income households. Single filers who earned more than $80,000 in adjusted gross income, heads of household who earned more than $120,000, and couples filing jointly with more than $160,000 in income will not receive stimulus payments in the third round.”
NOTE: If you have not yet filed your 2020 tax return, which is now not due until May 17, and you wish to receive the stimulus payment, you could endeavor to lower your adjusted gross income (AGI) to be eligible.
2. Pay the Bills
Meg speaks for many people when she said, “Pay some bills that I could not pay since my hours were cut due to Covid and those hours are not coming back.”
Helping to fund everyday living expenses is the real intent of the stimulus money. Pew Research reports that 51% of all non-retied adults are struggling to achieve their financial goals and 62% have experienced job or wage loss since the pandemic began.
3. Stash it into Savings
As Cindy said, “The stimulus money is going into savings for now, we’ll hold onto it for a while till we figure out how best to use it.”
According to a survey commissioned by Bloomberg News, 33% of stimulus recipients intend to save this round of money — that is 11% more than those who saved their first round of money from the CARES Act.
4. Spend it to Stimulate the Economy
The impetus to save the money is fodder for those who argue that the money is being given to people who don’t really need it. However, others believe that there are advantages to saving the money now and having it be spent in the future. A huge spending spree could stimulate inflation and a longer period of spending can be better for the economy overall.
However, whatever you believe, spending the money is the definition of “stimulus.”
As Michael pointed out, “In my humble opinion, anyone talking about investing their windfall shouldn’t be receiving a check. I intend to spend it. I just don’t know what on.”
5. Fund a Good Cause
Judy is dismayed to be receiving government money that she doesn’t need. She lamented, “It is amazing that even people with sizable net worth can qualify for this. How do you accept something you disagree with?”
Many people advise that if you don’t need or want the money that you donate to a good cause or spend it somehow in your own community. Diane suggested, “If you feel that way, you may consider donating your check to a food bank or a school or to a family in need. Some of us have been luckier than others.”
6. Stimulate the Local Economy
Mary Anne intends to put the stimulus to use locally. “I’ll be spending it to boost the local economy. Spending on locally owned restaurants and local handymen for home repairs.”
Steve adds that he will be: “Spending it all, every last dollar, with a couple of local businesses. In fact, a large portion has already been charged and work performed. Feeding the local economy.”
According to Independent we Stand, there are many benefits to shopping locally. They state that for every $100 you spend locally, $68 stays in the community. Whereas if you spend $100 at a national chain, only $43 stays local.
7. Fund Taxes on Roth Conversions
A Roth conversion is when you take money that you have in a traditional 401(k) or IRA account and move it into a Roth 401(k) or IRA. When you do this, you will need to pay taxes on the money you withdraw to convert. However, any future withdrawals will be tax-free.
Many people want to do Roth conversions, but finding the income to pay the necessary taxes in the short term can be problematic — enter the stimulus money!
Not sure a Roth conversion is right for you? Use the Roth Explorer in the NewRetirement Planner to determine if you could benefit from this strategy or not.
8. Bankroll Home Repairs
Katharine says, “All of our stimulus money is going to home maintenance and improvements that we noticed we needed or wanted after so much more time at home.”
Jim said that his money is going to something slightly more mundane. He is hiring a plumber for needed repairs.
9. Be a Big Tipper
Those in the service economy are those — by far — the hardest hit economically over the last year.
How great would it be for them to get especially big tips over the next year? Meg said, “I am just going to eat at all my favorite restaurants. (I have really missed the green enchiladas at my local cantina.) And, whenever I dine out, I am going to leave massive tips.”
There is a secondary benefit to big tipping, this kind of spending is one of the ways to use money to increase your own happiness.
10. Fund Living Expenses (and Forgo Withdrawals)
J.C. said, “Since we are living off Social Security and our portfolio, we will be able to withdraw $2,800 less from our portfolio next month.”
This kind of spending for your future can be very wise.
11. Go on Vacation
Travel is usually the number one goal for most people in retirement. And, the pandemic put a real damper on those aspirations.
With vaccinations happening and money being handed out, travel is likely to see a massive resurgence. Last week: The number of Google searhes for online travel spiked. Credit card data shows an increase in airline bookings — especially from older Americans. And, records were set for numbers of people on airplanes.
Kathy said she will “Put [stimulus] towards a grand vacation this year after we get vaccinated. I am itching to travel!”
Here are 20 great retirement travel ideas.
12. Splurging on the Grandkids
What is more important to many retirees than travel? Grandkids!
Mary says, “I am using my stimulus payment to rent a big house on the beach and bring my family back together. We’ve booked for August and I can’t wait for us to be all together.”
13. Buy Bitcoin
Many people — particularly those with high net worth — see their stimulus payments as funny money. And, quite a few intend to make speculative investments with the money, Bitcoin being a popular option.
John said he will “Buy Bitcoin. The government keeps printing money and as the dollar continues to be de-valued.”
14. Pay for College
The competitive crunch between college expenses and retirement savings and expenses is real. Many people intend to use the stimulus money to help fund college for their children and grandchildren — reducing the debt they or their kids will be carrying forward.
Learn more about how to fund college when you are trying to retire.
15. Pay Off Debt
Whether paying off credit cards or putting the funds toward an extra mortgage payment, many people will use the stimulus to pay down debt.
However, some financial experts advise against paying off debt if you don’t have a strong financial foundation. Suze Orman advises, “Would I be spending that money to pay down credit card debt? No way. The first priority is to save, save, save.”
If money is tight, Orman says, working to pay off debt should be low on your to-do list. Instead, she says, “I would be paying the minimum payment due on all credit cards. And I don’t care what the interest rate is.”
Other experts disagree, as even if you were to invest the money, you have no guarantee that you’ll see a return on investment. However, paying down your credit cards means you’ll be owing less in interest payments, which can be considered an effective “guaranteed return on investment.”
Use the NewRetirement Planner to compare scenarios for your long term financial projections. What happens if you pay off debt? What happens if you save the money?
16. Pay Down Student Debt
According to a report by the Consumer Financial Protection Bureau, people over 60 are the fastest-growing segment of the population with student loan debt. In all, more than 2.8 million Americans over 60 are contending with student debt, a number that has quadrupled from 700,000 in 2005, according to the bureau.
Ken is looking forward to getting the loan off his cash flow.
17. Handover to Taxes
Money in, money out. As Tom quipped, he is using the stimulus “To pay taxes… get it from them, then give it back.”
Pat went one further, he intends to “Save [the stimulus money] to pay the increase in taxes required to pay for the stimulus.”
Want to plan for how to reduce your future tax expenditures? Use the NewRetirement Planner.
18. Buy Guns and Ammo
Nate said he will use his stimulus to buy “Guns and ammo… maybe some new furniture.”
This intent may sound shocking to some, but data from the first stimulus indicates that money did go to gun sales. According to Forbes Magazine, “In April 2020, when many Americans were receiving stimulus payments in the mail or by direct deposit, federal background checks totaled 2.91 million, a 25% jump from the year before, according to the Federal Bureau of Investigation. In December 2020, when many Americans started receiving another round of stimulus payments at the end of the month, federal background checks jumped 34% compared to the year before, according to the FBI.”
19. An Early Retirement and Health Insurance Premiums
Figuring out how to fund an early retirement is difficult, especially when faced with how to afford medical insurance before you are eligible for Medicare.
Bill said, “I am really excited. I am 64 and the stimulus is just enough money that I feel comfortable retiring this year and will use the funds to help cover my health insurance premiums.”
9 ways to cover your health costs for an early retirement.
20. Medical Expenses
Phyllis is using the stimulus for her gum surgery. Beyond typical health expenses, teeth, eyes, and ears are categories not covered by most health insurance programs — including Medicare.
21. Fund a Final Check Before Retirement with a Financial Advisor
It can be hard to take the leap of faith into retirement. It is a big deal to leave behind a way of life you have always lived. And the pressures for having a solid plan for funding the rest of your life — no matter how long that turns out to be with myriad uncertainties for the future — can be overwhelming.
Many people find that talking through their plans — even just one time — with a fee-only fiduciary financial advisor can give them the reassurances they need.
NewRetirement offers fiduciary advice from an independent fee-only Certified Financial Planner. Consultations are by phone or video call and, by using the NewRetirement Planner, the process is collaborative, cost-effective, and efficient.
22. Funding a Splurge
The National Retail Federation reports that “A wide array of economic indicators point toward potentially record retail sales growth during 2021.”
The last stimulus saw spending increases for apparel, televisions, video games, sporting goods, and toys.
23. Build an Emergency Fund
We may be coming out of the pandemic, but uncertainty about the future is not necessarily going away. If you don’t have an emergency fund — money held in cash to be used for emergencies — now may be a good time to create one.
24. Spend on Something that Makes You Happy
Confusing. Heartbreaking. Limiting. These are some of the adjectives used to describe the pandemic year.
Whether you found the lockdown burdensome or no big deal, we could all probably use a little happiness. Here are 11ways to spend money to increase good feelings.