Finances and COVID-19
Guidance for Making Smart Short and Long-Term Decisions
COVID-19 has uprooted life for us all. In addition to the toll on human health, the pandemic is placing incredible strain on our individual and collective economic health.
The federal government has taken unprecedented actions to bolster the financial circumstances of individuals, families, business and the economy as a whole through the passage of multiple acts of legislation, including the Coronavirus Preparedness and Response Supplemental Appropriations Act ($8.3B), Families First Coronavirus Response Act ($104B) and Coronavirus Aid, Relief, and Economic Security Act ($2T).
While aid is coming through various avenues, the rapid and widespread number of furloughs and layoffs due to social distancing measures are causing many families to worry about how they will pay bills in the coming days, weeks and even months. Even those who have maintained full or partial income are working to ensure they make smart financial decisions during this time of uncertainty.
Start by considering the following:
1. Take a fresh look at your budget. Budgeting is a vital component of financial health at all times, but plays an even more critical role during crises. Start by identifying any changes in income and then look at spending. While certain costs such mortgage or rent payments are consistent, discretionary spending has automatically declined for many due to the closing of dining, personal care and entertainment establishments as a result of the pandemic. Assess recent changes and opportunities for savings to gain a better understanding of your current financial position. For example, if gym or other membership-based fees are still being charged, reach out to inquire about placing a hold on the account. Explore more tips>>
2. Sell unnecessary items. Consider selling items you are not actively using to raise cash. Be sure to follow all current CDC recommendations of social distancing, including maintaining a 6-foot distance, and washing hands before and after the transaction. Consider using digital payment options (Venmo, PayPal, etc) to remove that contact point and remove potential fraud with checks. As always, follow safety measures when meeting unknown people such as meeting during the day in a public area.
3. See where help is available. From utilities and banks to credit card companies and student loan providers, many companies are offering varying degrees of assistance, including reduced interest rates, delay of payment, waived late fees and service suspension delays. Contact your providers directly to see what assistance is available.
4. Shift long-term savings into short-term cash flow. Consider temporarily reducing your contributions into retirement plans and other long-term savings in order to have more cash available to deal with the uncertainty of the current climate.
5. Utilize your emergency fund. If you have completed the steps above and are still in need of additional cash, withdraw it from your emergency fund. Whether you have saved enough to cover several months or just days of expenses, exhaust this resource before taking any other action.
6. Help for small businesses. If you or your spouse own a business, The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed. Eligibility extends to businesses with fewer than 500 employees as well as independent contractors and sole proprietors. Learn more
Balancing Today’s Needs with Tomorrow’s Goals
While loans and hardship withdrawals have always been available from retirement plans, they also come with multiple conditions and borrowers often face penalties. Due to the coronavirus, the CARES Act expanded distribution opportunities. The rules surrounding distributions are plan specific and are subject to evidence of direct impact from the COVID-19 pandemic. These distributions will be taxed across three years, unless elected otherwise. You can avoid taxation by rolling the dollars back into an eligible retirement plan within three years from the date of withdrawal.
Before withdrawing from your employer-sponsored retirement plan, it’s important to understand the potential consequences, including potentially missing out on participating in a stock market rebound which could significantly impact your long-term retirement plan. Only once you have exhausted all other measures above should you consider retirement plan distributions.
If your situation has you considering taking money from your retirement plan, contact your Cannon financial advisor to discuss your options. We will work with you to assess your situation and find a solution that meets your financial needs today and in the future.