Improve Your Financial Well Being Now (It is Not Impossible)

Improve Your Financial Well Being Now (It is Not Impossible)

Uncertainty. Fear. Confusion. Sacrifice. Acceptance. Stress. There are a lot of strong emotions that we all share right now. And, worry about our finances is a big one — massive.

Here are 9 steps you can take to improve your financial well being now and into the future.

1. Don’t Worry (Too Much) About Today’s Retirement Account Balances

Whatever your account balances say now, it doesn’t matter if you don’t have to withdraw the money.

The stock market goes up and down in the short term. Over the long haul, it has historically done nothing but go up.  Even a worst case year-, two-year, five-year or longer contraction of the economy will eventually rebound assuming that history holds true.

There is no reason to sell if you don’t need the money. You will only be taking the losses. The losses are not a sure thing, not your reality, unless you sell.

IMPORTANT NOTES:

  • If you DO need funds to make ends meet now, review 11 of the best (and worst) sources of emergency money to discover the most financially efficient ways to bridge in this crisis.
  • If you WILL need those funds within the next 5 years, it is time to do some planning and make adjustments. At this stage, it is important to have plans A, B, and C for your finances. (See below.)

2. Assess Your Short Term Financial Health

The financial uncertainty can feel overwhelming. And, absolutely no one knows what is going to happen to our economy.

Have you lost your job?  Here are 9 tips for navigating unemployment now— including tips on maintaining or getting health insurance.

Do you need access to cash or income now? Assess the best (and worst) sources of emergency money and income for funding your life during the Coronavirus crisis.

Doing okay? Or not? Breath.

3. Plan for Different Scenarios: Plan A, B, C (Maybe Even D, E and F)

No one knows what is going to happen.

It bears repeating that this pandemic is completely without precedent. It is also worth remembering that the pace at which we live and innovate is also unprecedentedly fast and we have reason to hope that a recovery could potentially happen quickly.

Furthermore, by many measures, given how much bad news we see and how many unknowns we are facing, you could argue that the financial markets should be much worse than they are now, but they aren’t!

In the absence of being able to tell the future, it is important that you create some plans AND backup plans for your current and future finances.

Don’t just worry about what is going to happen to your finances, go ahead and run some scenarios and find out. No matter what, in all possible eventualities, you will probably find that you can make things be okay.

Here are a few things to run scenarios on in the NewRetirement Planner.  Evaluate these topics to see how the economy will impact your finances and how you can use these levers to improve your personal situation:

Account Balances:

It may sound scary, but facing fears is one of the best ways to deal with them. Run different scenarios with your savings:

  • Be brave and enter your account balances as they stand today. Are your long term plans still solvent?
  • Try different rates of return. Remember, what is important is your overall lifetime returns, not what happens day to day, month to month or year to year. We will likely see wild swings in the markets, but that will net out to some average for your lifetime.
  • Try bucketing your savings into what you need in the short term, mid term and long term and apply different rates of return for each bucket of money.
  • Have access to cash? What happens if you invest it now? (Or, is it better to reserve that cash for the current emergency since it will be of an unknown duration?)
  • Can you keep pace with socking away retirement savings? What happens if you stop making these contributions?
  • Consider if you can afford a Roth conversion while your portfolio is down. NewRetirement PlannerPlus users can model this scenario and analyze the costs and benefits.

Inflation:

It has been a long time since inflation was a scary force on our financial plans. I wouldn’t take bets on what will happen in the next decade and beyond, but testing your plans at different inflation rates would be a good idea.

The Economist reports that many experts predict that the aftermath of the pandemic could bring back inflation.

  • Be sure to look at general inflation as well as medical inflation.

Work:

According to a report from the Brookings Institute, older Americans who lose their jobs due to coronavirus may experience more hardship than younger Americans. 

During the peak of the Great Recession, it took unemployed older workers 43 weeks, on average, to find a new job, while workers ages 35 to 44 only took 29 weeks. Those who found a new job received deeper pay cuts than younger workers: Men over age 62 saw an average pay cut of 36%, compared to 1.5% for men ages 25 to 34. Six in 10 older workers also reported experiencing age discrimination in the labor market.

  • If you have lost your job, you may want to adjust your work income as part of your retirement plan. Try different lengths of time being without an income. Try different income levels for different types of work you might be able to find.

Other Income:

Besides work, you can have other sources of income.

  • Explore and add passive income streams to your plans
  • Adjust your need for withdrawals from savings by reducing your spending
  • Play with different withdrawal strategies
  • Want to guarantee your income from savings, no matter what is happening with financial markets? Have you considered a lifetime annuity? Use an annuity calculator or model an annuity in the NewRetirement Planner.

Debt:

Keep an eye on interest rates and see if you are able to refinance into a lower rate. Think about your mortgage and other debt (credit cards, car loans, medical and any student loan obligations) you are carrying.  

Housing and Home Equity:

For many people nearing retirement age, home equity is usually the single largest component of net worth.  And, it can be a valuable contributor to retirement and financial well being.

As such, it is important to assess what will happen with home values due to the pandemic. 

A new report from Fannie Mae projects that:

  • Home sales will fall by 15% in 2020 due to issues with both supply (not many houses for sale) and demand (few buyers).
  • Home prices will remain stable
  • Refinancing will be popular.

Here are a few things to consider:

  • If you need sources of funding, consider ways to release home equity, including: downsizing and securing a reverse mortgage.
  • If you are carrying a mortgage, can you refinance into a lower interest rate?  If you are suffering financially, you can also contact your mortgage lender and see if they are offering special programs. You can look up your lenders on this list from the banking trade association to see what concessions are being offered.
  • Explore all of the different ways to use your home equity for retirement income, cash, leverage or a back up plan.
  • Model any or all of these changes in the NewRetirement Planner to see the impact.

Spending:

Now is a better time than usual to assess and update your monthly spending — especially since habits have changed.

Use the NewRetirement Budgeter to:

  • Set spending levels in over 70 different categories
  • Apply must spend and nice to spend levels
  • Alter individual costs over time

4. Understand How the CARES Act Can Help You

Your Rebate: Individuals with a Social Security Number (SSN) and who are not dependents may receive $1,200 (single filers and heads of household) or $2,400 (joint filers), with an additional rebate of $500 per qualifying child, if you have adjusted gross income under $75,000 (single), $150,000 (joint), or $112,500 (heads of household) using 2019 tax return information.

Use a rebate calculator to figure out how much you will receive.

You can check the status of your rebate here.

How to Qualify for and Receive the Rebate: Most people do not need to do anything.

  • Current tax returns will be used, in most cases, to determine the rebate. They are recommending you file as soon as possible.
  • If you are receiving Social Security and did not file taxes, you will still receive the rebate.
  • If you e-filed your tax returns or are receiving Social Security with direct deposit banking, the money will be put into your account automatically.
  • Everyone else will receive a check although the treasuring may be providing a web site for individuals to enter banking information.

Small Business Provisions: There are a variety of loans and other assistance being provided to small businesses. Here is a summary of opportunities.

Unemployment: The government has opened up unemployment to a broader group of people and are supplementing payments.  Learn more: Laid Off Due to Coronavirus? Here are 9 tips for navigating this uncertain time

Required Minimum Distributions (RMDs) NOT Required: In order to provide relief to people who do not want to sell investments at a loss in order to take their RMDs, RMDs are NOT required in 2020.

It Is Also Easier to Make Withdrawals from Tax Advantaged Accounts: The CARES Act has made it easier to make withdrawals from your tax advantaged accounts if you have suffered COVID-19 related harm. If you are affected by the disease, you can make withdrawals without incurring the 10% early withdrawal penalty.

Learn about other sources of emergency money.

Tax Deadlines: While filing as soon as possible is probably a good idea, the tax deadline has been extended till July 15.

5. Review Your – or Take the Opportunity to Develop an – Investment Policy Statement

You probably know that you need a well diversified asset allocation plan.

However, most people are not as familiar with the idea of an Investment Policy Statement (IPS).

An IPS is meant to define:

  • Investment goals
  • Strategies for achieving those objectives
  • A framework for making intelligent changes to your plan
  • Options for what to do if things don’t go as expected

A strong IPS can be an invaluable tool for helping you achieve your financial objectives and to stay the course when unpredictable things happen.

Did you know that NewRetirement offers flat fee advisory services? You can collaborate with a Certified Financial Planner who has taken a fiduciary oath and specializes in retirement. Your advisor will:

  • Review your NewRetirement plan to quickly understand your circumstances and make sure it is set up properly.
  • Help you establish goals and identify ways to strengthen your finances.
  • Meet with you via phone or video call to discuss your goals and suggest ideas for how to do better.
  • Provide ongoing support.

Click here if you would like to learn more about NewRetirement Advisors.

6. Upgrade Your Stock Portfolio

When the entire market goes down, one strategy that can pay off big is to improve the mix of stocks you own.

Perhaps you own some “lower-quality” stocks of funds, you could potentially sell those holdings and buy into companies of higher quality and better long term prospects.

Look to sell companies with high fixed costs or lots of debt and buy stocks with high levels of growth, cash-rich balance sheets and good returns.

Of course, you need may some expertise to do this effectively.

Warren Buffet once said:

What an investor needs is the ability to correctly evaluate selected businesses. You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”

It is a good idea to know something about the companies whose stock you own and to really believe in them. You will be less likely to panic and sell in a major downturn if you actually understand what the company does and know enough about the industry to project whether or not there will be a market for whatever the company makes in the future.

Don’t have the expertise yourself? Talk with a certified financial advisor.

7. Take the Opportunity to Review and Update Your Estate Plan

You might be stuck at home, why not put the time to good use with a review of your estate plans?

Make sure all of your documents are up to date: your will, letters of instruction, financial power of attorney, living trust, medical power of attorney, living will and all beneficiary designations on accounts.

Explore: Estate Planning: 11 Documents You Need and How to Get Them Done During the Coronavirus Crisis.

8. Do a Roth Conversion, Reduce Tax Burden

If you have been considering a Roth conversion, doing the transfer when the market is down means that you’ll pay income taxes on a lower portfolio value.

And, when the market bounces back, you will benefit from future tax-free growth and withdrawals from the Roth account.

A few things to keep in mind:1) A Roth conversion is a permanent move. It used to be you could undo the conversion, but the Secure Act changed that. 2) You’ll want to make sure that the conversion doesn’t raise your Medicare Part B and Part D premiums in future years. 3) Be sure you are careful to follow all conversion rules and reinvest while market is down. 4) Most importantly, make sure you have the money available to pay the taxes owed on the conversion. Ideally not from the account you are converting which reduces the efficiency of a conversion.

It is easy for you to model different Roth conversion amounts in the NewRetirement Planner. PlannerPlus users can:

  • Model conversions at different amounts.
  • Immediately see the difference in your lifetime tax burden.
  • Analyze how it changes tax brackets and more.

Learn more about Roth Conversions.

9. Keep Up Regular Savings Contributions. And, Consider Buying with Available Cash

If possible, keep up with your regular savings contributions. And, if you have cash available, consider buying. The time to buy into the markets is when they are down.

You don’t have to time the exact bottom. When the market is sliding, many people buy a little bit every day and keep buying every time the market dips.

The advantage of this strategy is that you are more likely to get in before things rocket back up.

You see, the reality is that stocks typically soar back upward well before the crisis that provoked the selloff has run its course. The market recovery from the 2008-09 financial crisis illustrates this vividly:

  • Despite assurances from the pundits that investors should not expect a v-shaped recovery, stocks did exactly that.
  • From the market low in March 2009, the Dow Jones index gained 30% in the span of just three months.
  • By the end of the year it was up more than 60% from its low point. All of this occurred despite fear continuing to grip the market and the widespread belief that stocks were experiencing a false recovery and would fall below their March lows in short order.
  • Investors who were still waiting for the “all clear” signal to get back into stocks instead saw stocks leave them in the dust.

NewRetirement Planner

Achieve financial security for your retirement