Illustrations chris gash
En español | You don't need a Ph.D. to know the economy has hit some seriously stormy conditions. You've watched the value of your nest egg bounce wildly, and you've seen employers slash jobs nationwide.
To weather this period, however long it lasts, you need to focus on what's under your control. Here are some steps financial advisers suggest to put some cash into your pocket.
1. Get government relief.
The CARES Act provides more than $900 billion in help to individuals and small businesses, including a onetime payment of up to $1,200 for most adults. If you filed a tax return in 2018 or 2019 or receive Social Security, you should get that money automatically; otherwise (say, if you receive veterans benefits), you can register for your payment by going to irs.gov and clicking on Non-Filers: Enter Payment Info Here. The law also provides expanded unemployment insurance benefits, including higher weekly payments to laid-off workers; more weeks of coverage; and money for out-of-work self-employed and gig workers, who usually can't get unemployment benefits. Apply through your state's office.
If you own a small business, you may be able to get a loan through the Paycheck Protection Program run by the U.S. Small Business Administration (SBA), or a separate COVID-19 Economic Injury Disaster Loan, also run through the SBA. Unfortunately, as of early April, businesses were reporting difficulties and delays in receiving funds through both programs, but those problems may have eased by now.
2. Leverage Social Security for an interest-free loan.
- If you are at least 62 and haven't begun taking Social Security yet, you may want to do so if it helps you avoid tapping your shrunken investment portfolio. But you need to be aware of the long-term risks, explains DeDe Jones, a Denver financial planner. If you haven't reached full retirement age (66 if you were born before 1955; slightly higher if you're younger) and you file for benefits, you have 12 months to withdraw your claim and pay back what you've received interest-free. “It's one of the few times you can hit ‘undo,’ “ Jones says. That year of Social Security cash might give you enough time for your investments to recover or for you to find other sources of income. Beware, though: If you don't withdraw the claim within 12 months and repay what you've received in a timely manner, your filing is permanent and you won't enjoy the higher monthly benefit you would have received had you delayed claiming.
- After you have reached full retirement age, you have the same option of applying for Social Security, then withdrawing your application within a year and returning your benefits. But you have another option, too. If you don't change your mind in time, or if you can't or don't want to repay what you've received, you can simply suspend your benefits. That allows your potential monthly benefit to increase at the rate of 8 percent a year until either you reach age 70 or you decide before then to take your benefit permanently. Suspending your benefit, however, will cause benefits based on your record (your spouse's, for example) to be suspended, too.
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3. Reconsider your RMDs.
Thanks to a provision in the coronavirus relief package, you don't have to take required minimum distributions (RMDs) from your retirement accounts this year. Those mandatory withdrawals — from traditional IRAs and from 401(k) and other retirement plans at former jobs — would otherwise apply to people who turned 72 this year or who reached 70 1/2 in prior years. This gives accounts more time to recover from market declines.
To help younger workers financially hurt by the coronavirus, the law waives the 10 percent penalty, on top of ordinary income taxes, that usually applies if you pull money from these retirement accounts before you turn 59 1/2. You also get up to three years to pay the taxes on that withdrawal or to return all or part of it to your account.
If you decide you need to pull money from your retirement account, try to take the money from the bond side of your portfolio or from cash in that account. You want to sell stocks when they are doing well.
4. Communicate with lenders and landlords.
If you are having a hard time making a payment, get in touch with your auto lender, landlord or mortgage provider to work out a payment plan. For instance, you may be able to defer payments and have them added to the end of your term. “For a lot of folks, if they could defer one month's mortgage payment, it could bridge them through a hard time,” says Phil Dyer, a financial planner in Towson, Maryland. The CARES Act gives homeowners with federally backed mortgages the right to apply to delay payments up to six months and gives tenants a four-month moratorium on evictions from properties that are part of government programs or that have a federally backed mortgage loan.
5. Pay down costly debt.
If you charged a lot on your credit card in the past couple of months, aim to pay off your debt quickly. Alternatively, you might want to transfer your debt to a low- or zero-interest card, suggests Anthea Perkinson, a financial planner in Pelham, New York. “You can find cards that offer zero interest on charges for 15 months,” she says. “If you need to, you can put groceries on it and wait to take money out of the market."
6. Avoid major changes.
Hold off on significant financial decisions, like buying a new house or retiring. “Press the pause button and reevaluate your situation,” recommends Dawn Brown, a wealth adviser at Lassus Wherley in New Providence, New Jersey.
Another reason not to hand in your notice: “If your industry is shaky, you may get laid off and could possibly collect unemployment benefits for a while,” says Lauren Locker, a financial planner in Little Falls, New Jersey. “That way, you can delay your decision to retire until you can better assess your finances.”
And, of course, do the following:
7. If possible, build your cash reserves.
Think of your bank accounts as floats; the bigger they are, the more secure you'll be during storms. “If you have income coming in, divert more cash to savings,” urges Cynthia Flannigan, a financial planner in Burlingame, California. “If you think your company might be hurt by this slowdown, reduce expenses to increase your emergency fund by another month or so.”
8. Slash your spending.
It's easy enough to curtail spending on lunches and clothing when you're staying close to home. But go to the next level. Review several past bank and credit card statements to examine more deeply where your money is going. “Look at services that are on auto pay and determine if you really need them,” Dyer says. Maybe now is not the time, for example, to have HBO, Netflix and Hulu subscriptions.
9. Find some big wins.
Dyer suggests contacting your car and homeowner insurers: “Just the act of calling can often save you 10 percent.” Perhaps raise your deductibles to reduce your premiums. And if you have a 30-year mortgage with more than a 4.25 percent interest rate or a 15-year one of more than 3.5 percent, it may make sense to explore refinancing to free up more cash each month, Dyer says.
Karen Cheney is a veteran personal finance writer whose work has appeared in Money, Real Simple and elsewhere.