We’re now over a year into the pandemic, and there has been no shortage of discussion on how it’s affecting our lives. “Unprecedented” is one word we keep hearing, describing everything from the impact of the virus on older Americans’ health to the consequences on our finances.
Jo Ann Jenkins, the CEO of AARP, called health and money the “one-two” punch of the pandemic in a conversation with none other than Suze Orman -- the world’s personal finance expert. They spoke at an AARP tele-town hall that covered all things related to money, beginning with the latest COVID-19 Stimulus Package just signed into law.
Listeners of the town hall also heard about the current tax season from experts Erin M. Collins, the IRS’s National Taxpayer Advocate; Deborah Owens, founder of WealthyU; and Steve Conary, a volunteer from AARP Foundation Tax-Aide. Taxpayers are navigating an extremely complex tax season as result of unemployment, scams, the loss of a loved one, or their own health issues related to the pandemic.
Today, we’ll highlight some of the standout moments of the tele-town hall, and hopefully answer questions you may still have.
That’s coming up next.
Hi, I’m Bob Edwards with An AARP Take on Today.
Margi Mannix, AARP Vice President and Editor-in-Chief, hosted the event.
Margi Mannix: Hello. I am AARP Vice President and Editor-in-Chief Margi Mannix, and I want to welcome you to this very important discussion about the coronavirus.
We began with the conversation between Jenkins and Orman. The two first discussed the importance of an emergency savings fund. An AARP Public Policy Institute report from October 2019 found that fifty-three percent of US households had no emergency savings account.
Long before the pandemic, Orman was an outspoken proponent of setting up a savings account for emergencies. She used to advise that people save for an eight-month loss of income. Now, she advocates that we should save even more.
Jo Ann Jenkins: Suze, I guess we should be listening to everything you tell us, because obviously you were able to see through how important it was for us to maintain that savings account in a rainy day.
Suze Orman: What’s interesting, Jo Ann, is that it doesn’t take a pandemic for us to have to say, we need an emergency fund. It can be an illness; you can lose a job. Look back in 2008, 2009, and what happened by losing a house and everything. So it’s not just about these once- (hopefully) in-a- lifetime events, like the pandemic, that says, oh my God, we need this emergency fund. It’s really, really about we always need it, because here’s the point, everybody, is that you have to ask yourself the question: What is the goal of money? And the answer to that question is the goal of money is to make you feel secure. And nothing will make you feel more secure than knowing that no matter what happens to you, no matter what happens in the economy, that you know you’re able to take care of yourself and your family for now at least one year. You know I used to say Jo Ann, was that all you needed was an 8-month emergency fund. Sometimes, pundits would say, “you only need three months, siz months,” – wrong. Now I’m saying, everybody, you need at least a 12-month emergency fund. If we’ve learned anything, hopefully we’ve learned that lesson now.
Jo Ann Jenkins: That is so important because so many of our members who work in part-time jobs or even in full-time jobs or in the service industry lost their income in totality and have had to adapt, either relying on that emergency fund or family or friends and sort of going through that. So that’s so important. You know, we were talking about caregiving, and I know you lost your mother not too long ago, but how important it is for us to think through our care for our loved ones.
Suze Orman: You know, what’s interesting is that just to combine the emergency fund along with the stimulus checks that people are going to get, along with the fact that we are now taking care of so many people, it’s really important that when these stimulus checks come in — and they’re going to come in for a lot of money hopefully for a lot of you, because remember the … new stimulus says, if you are taking care of an adult parent, for instance, as a dependent, you’re now going to be able to claim that $1,400. So please, when you get these stimulus checks, please just don’t go out — and if you don’t have an emergency fund, you don’t have any money to your name, you don’t know when you’re going to get your job back — don’t go out and take all of this money and pay down all your credit card debt with it. Don’t do that. Keep this money safe and sound. Even if that means you’re only paying the minimum payment due until things get better. But to go along with your question, Jo Ann, about taking care of parents — it is a big deal, and it is expensive. And all I can say — and maybe you can’t afford it right now because you don’t have the money to do so — but when you do, you should absolutely look into a long-term care insurance policy, because I can guarantee you that you will pay less in all the years that you pay premiums than you will for one year of care if you have to pay for it out of your own pocket. So these are just a few of the things we have to think about, but the main point, that we should be making, Jo Ann, is when you get these stimulus checks, when you get these child tax care credits, when you get certain things you’re going to be hopefully getting right now, really think about the lessons you’ve learned last year. And where you have said, “I wish I had done this, I wish I had saved this,” just think twice before you go out and spend this money.
Jo Ann Jenkins: That is so important. And I’m so happy that the president actually signed that third stimulus bill this afternoon, and we’re already hearing that checks will be going out within the week for those who get direct deposits. So that’s important for all of us to think about what you do with that money and how important it is to make sure you’re taking care of your financial health before you spend money on things that may be a want and not necessarily a need. So Suze, so you get your stimulus check … what are the things that they should be paying?
Suze Orman: Here’s what I think everybody really needs to do. Get a grip on reality as to what is really going on in your life right now. Make a list of every single must-pay bill. You must pay your health insurance. You must pay your rent payment so that’s important for allayment, your mortgage payment, whatever it may be. And make a list of that … money that you must pay every single month. But what is on the list that you don’t have to pay every month? And if you don’t really have to pay them, at least in full, then think twice about spending that money. I’m very aware that the government is wishing and praying and hoping that all of you take this money and you go out and you spend it to stimulate the economy. I get that. And they think that’s going to save everybody. I’m asking you to understand that you have to save yourself because in reality, nobody else can save you — but you. And I know a lot of you may start to feel guilty; oh, my kids didn’t have these toys for last Christmas. It’s their birthday now, and so I’m going to go and spend a little bit of this money. No, you have to ask yourself the question before you spend 1 cent: Is this a want, as Jo Ann just said, or is this a need? A need is food at a grocery store; a want is food at a restaurant. And I understand that we want to support restaurants so that they can stay in business, but I need you to be able to stay afloat more than anything else. If it’s a need, you spend the money. If it’s a want, you do not spend it. And really, Jo Ann, it’s just that simple.
And I just want to go back for one second … I don’t think people understand the important work that AARP did in order to make it so that the dependents that weren’t under the age of 17 — that were still possibly in college, that were elderly adults, that many of you are taking care of — now you can get a stimulus check for. That is huge. That’s not a little thing. That is a big thing. So, for those of you who are older and you have older parents — and you are taking care of them, and maybe you haven’t claimed them as a dependent or whatever it may be, and you’re paying for more than half of their income or their needs — you might want to think about absolutely making sure that you get a $1,400 check for them as well.
Jo Ann Jenkins: Thank you for the shout-out, Suze, because it is so true. Were it not for AARP on many of these issues in this stimulus bill, they would not have been accounted for in the bill that the president just signed. I also think it’s true that … we say here at AARP, one thing is for certain: You’re either going to need a caregiver, or you’re going to be a caregiver. And that couldn’t be so true at this important time in our history. And that’s why it’s so important for all of us to get vaccinated. Hopefully the number of vaccines that have been signed off on for emergency use, the three that are here in the U.S., that even though it’s difficult to get that appointment, it is well worth it. I know that both my husband and I have gotten our second vaccines, and what a relief that is. Never did think I would be happy to have a preexisting to be able to do this. But I just want to encourage everybody that is so important, because we know that the majority of people who have died in this country had either lived or worked in nursing homes. And so that’s important for us to keep thinking about.
Jo Ann Jenkins: I know Margi, you’re champing at the bit to get in here and have our members ask questions of Suze, so I think we’ll throw it over back to you. And then Suze and I will be here for the next few minutes or so to answer any questions that we might have.
There was no shortage of questions that night. Listeners voiced their concerns and questions around money and savings for expert Suze Orman. The first caller of the night, Brenda from Louisiana, wanted to know if she would be penalized from reaching into her 401k. Let’s hear what Orman has to say:
Margi Mannix: We have Brenda, I believe from Louisiana. Brenda from Louisiana, that’s great. What is your question for Suze or Jo Ann?
Brenda: Mine was the same, I guess, kind of tax also, but about 401k. … I didn’t try to get anything out of the 401k for the first time, ’cause I had … extended savings. I always practiced that, but now that I’m unemployed, we will be reaching to that 401k now. Will we be penalized?
Suze Orman: I’d like to just make you aware of something, which is that all of us need to really understand that the money in a 401k plan or a retirement plan is protected against bankruptcy. OK. So what I would be asking you is, for instance, let’s just say … I don’t know how much you have in your 401k plan, but let’s say just all that you happen to have in it would be $10,000. And now you want to take out some money from your 401k plan just to pay your bills. And now you’re out of money in your 401k plan and you still don’t have money, and now you have to claim bankruptcy. Do you understand what a mistake that would have been? Last year when they allowed you to take money out of your 401k plan, up to like $100,000 if it was a COVID-related thing — that no longer is in effect at this point in time… are you no longer working with your plan?
Brenda: No ma’am, I’m not working.
Suze Orman: All right, and how old are you?
Suze Orman: Great. And when was it that you left service? Was it this year? Last year?
Brenda: No, I left on disability in ’17. I was in a car accident.
Suze Orman: All right. So you haven’t been working for a while, is that correct?
Margi Mannix: Since 2017.
Suze Orman: Since 2017. So, I was going to say, if you had left service … in the year of when you turned 55 or older, you could have taken money out of your 401k and just paid taxes on it. You might … now at 58, there are certain things that you might want to do, but … for a disability you may be able to be excused from the 10 percent penalty, as a hardship withdrawal. But just think twice about what I just said to you, though, about possibly having to claim bankruptcy, if that happens to be your case. The other thing I just want to say is, you have stimulus checks that are about to come into you, right? So if you could just hold off a little bit, and hopefully that stimulus check will get you a little bit further down the line, that would probably be a great thing to think about.
One listener, Glenda, asked via Facebook if she should pay her mortgage at this time, adding that she’s retired, age 67, in good health, and single.
Suze Orman: So really Glenda, the answer to that question would really depend on if you plan on staying in that house for the rest of your life. Because if you plan on staying in that house for the rest of your life, there is nothing that makes somebody more secure, especially a woman, than owning her own home outright. So if you have the money to pay off the mortgage in full — and chances are you’re at the latter end of your mortgage where your tax write-offs aren’t that great anymore — so if you have the money to pay that mortgage off in full, still have a 12-month emergency fund, hopefully be out of credit card debt and car loan debt and debt of all kinds, and that would make you feel more secure, oh, you betcha, girlfriend. You should pay it off. Next question.
Jean Setzfand: Yes, we have one last question for Suze. This is Leisha from Ohio.
Margi Mannix: Leisha from Ohio. What is your question tonight?
Leisha: Hello, how are you?
Suze Orman: We’re great, Leisha.
Leisha: Good. I became disabled in 2018. I’m 55 now. I’ve got my life insurance, is all taken care of. I have a lot of debt I incurred on credit cards, and my line of credit that I took out is like at $27,000. I’m trying to pay it off. These all occurred because of being a Social Security Disability, and the limited income that I get, and having to pay for prescriptions and doctor bills and that sort of thing. Is it best if I change the line of credit to a second mortgage at a fixed rate?
Suze Orman: Let me ask you a question. I heard you say you have life insurance is all taken care of. What kind of life insurance do you have?
Leisha: I have whole life.
Suze Orman: And what is the cash value of that?
Leisha: I’m not sure.
Suze Orman: All right, is anybody financial dependent on you?
Leisha: No, just myself.
Suze Orman: Thank you. Listen to me closely now. It makes absolutely no sense on any level that you have a whole life insurance policy, because who are you having insurance for? We want to make sure that you get to live your whole life as much as you can. So given the fact that you have insurance, and you don’t need it, chances are your whole life insurance policy has a cash value on it. And it will have … and you could surrender that, and who cares? Right. You surrender it, you then stop having to pay the premiums for it, possibly, unless it’s paid up already, but so you would stop paying premiums, you get the cash value, and now you have some cash in hand. I would be very, very careful if I were you about taking out a second on the house and doing all that because the $27,000 that you have is secured debt, which means if you can’t pay it, they will take your house away from you. So I would forego the credit card debt, paying the absolute minimum on it or whatever, and I would do everything I could to pay down the $27,000 of a line of credit that you happen to have. I’m sure the interest rate on the line of credit is equal right now to what it would be if you did a second, there might be closing costs, things like that. So I would just leave the line of credit like it is right now, and do everything in my power to get rid of it.
We’re going to take a quick break for announcements, but when we return, we will hear from experts on demystifying this tax season. Stay tuned.
If you want to hear more from Suze Orman, you’re in luck. She's been on this program a few times before. Most recently, in episode 85, she discussed her book, "The Ultimate Retirement Guide for 50 plus: Winning Strategies to Make Your Money Last a Lifetime." The audiobook is now available for purchase, narrated by Orman herself. She’s shared with us a link to listen to the first chapter for free. Check the show notes for more details.
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Margi Mannix: And now for the next part of our program, I am very happy to bring in additional special guests: first, Erin M. Collins, the IRS’s National Taxpayer Advocate. Then we have money expert and author Deborah Owens, and Tax-Aide volunteer Steve Conary. Welcome to all of you. Erin, let’s start with you. If anyone knows how difficult this tax season is for Americans, it is you. Let’s do a quick Q&A of the top questions you’re seeing this year. What has the pandemic changed about this tax season and what should people consider as they are filing their 2020 taxes?
Erin Collins: Last March, I had the privilege of being sworn in as the National Taxpayer Advocate, and I lead a tremendous group of employees in the Taxpayer Advocate Service. My position and the Taxpayer Advocate Service was created by Congress to help taxpayers, free of charge, when facing financial difficulties or dealing with problems when IRS systems or procedures fail. So my recommendation, circling back to your question for 2021 is everyone should try and file the returns electronically. I strongly encourage everyone to make the effort to file it and include your bank routing information, so you could receive your refunds timely. Typically, if there are no issues with the electronically filed return, it can be processed timely, and refunds would be issued under 21 days, and often as quick as one week. But if there is a discrepancy between your tax return and the IRS records, unfortunately, the IRS has limited staff to manually work those, and there will be delays.
And one other thing to think about is to prevent identity theft, which is truly a challenge across the country, consider applying for what is referred to with the IRS as the identity protection pin. That will prevent someone else from filing a return under your name and claiming your refund. On Tuesday, my office posted a blog, under the National Taxpayer Advocate blog, that explains what you need to do to apply for a pin. So it’s an extra level of protection in this day and age that is very important. You can also go to irs.gov, you can go to our Taxpayer Advocate Service webpage or our blogs for both practical tips and information on the pin, as well as other information for IRS purposes.
Margi Mannix: OK. Great. Thank you. And my last question for you right now is one that we do get a lot: “I did not receive my economic stimulus payment. What do I need to do to get my payment?”
Erin Collins: If you are eligible, and you did not receive the first, the second, or the full amount of your stimulus payments, what you are required to do is to file a 2020 tax return, a 1040 or 1040SR for seniors And you would put in there that you received — for example, let’s say you didn’t get either payment, you would put zero. And as a result, potentially depending on what your income was, you could receive $1,200 for the first payment and $600 in the second payment. By filing your 2020 tax return, you could reflect that you did not receive the $1,800 of stimulus money, and the IRS would pay that as part of your 2020 tax return. Again, that’s something you might want to check with your advisers or the AARP Tax-Aide to see the dollars and your eligibility, but it is something that in order to get the money — and Robert, if you’re listening, you need to file the 2020 tax return, which will give you the first two stimulus payments.. I think we’ve all seen the news; President Biden signed today the new package, the new relief for individuals, and that includes a third stimulus payment, which will be made. If you are a Social Security recipient, the IRS will automatically pay you your stimulus payment if you’re in the Social Security system and you have bank deposit information. You will receive that. If you’re not, and you don’t receive Social Security, filing your 2020 return will make you eligible for that third amount if your income is below: If you’re single $75,000; if you’re filing jointly, it’s the $150,000.
Margi Mannix: Great. Thank you so much for that valuable information, Erin, we really appreciate it. I just want to remind our callers that we also have a wealth of information on our website, and we do have several pieces of informative educational articles on the recovery refund credit that Erin mentioned. You just need to go to aarp.org/taxes, and we have more information there. Let’s turn now to Deborah Owens at WealthyU. Deborah, are there opportunities to help advance your career and financial goals during a pandemic? Say if someone has been laid off, or just has time on their hands, what should they be doing?
Deborah Owens: Yes, well, I tell you it’s been the best of times and the worst of times depending upon what industry you’re in. Let’s tackle that first question around career. What we’re seeing in our community is that the people who are weathering this pandemic the best in terms of careers are going where the growth is. And what I mean by that is even though we’ve seen industries like transportation and restaurants really be the hardest hit in this, what we’ve seen, though, is there are companies that are hiring more than ever. And so if you’re thinking about what are some ways that I can find … job opportunities or career opportunities, the place to be looking are companies like Amazon. They hired, they are hiring over 120,000 people, and they were already expanding in certain markets; that was announced even before the pandemic. And the good news there is, one of the kind of unintended consequences, or benefits I would say, of the pandemic is that many of companies are now hiring virtually. So you’re no longer limited, or limited by geography, particularly in financial services. We know that many of those jobs were in metropolitan areas — large cities like New York, which is the sort of finance capital of the United States or the world, if you will. Now, many of these companies — like Fidelity, E*Trade — are all hiring people, customer service agents; and sometimes you do need licensing but talking about ways that you can really upgrade your skills right now. Another benefit to the pandemic is many of the universities and community colleges are allowing people to take classes and upgrade their skills with some certification with little or reduced fees. So just some encouragement for our audience —maybe you’re struggling through this — to kind of think about what are the things that you can position yourself for, to take advantage of what has really been of very unfortunate time for so many of us.
Margi Mannix: Great. Thank you, Deborah. So there are some opportunities out there and there’s also some more education that people can turn to. That is great to hear. Thank you. Now I’d like to turn to Steve. Steve, how can people access some of the free services the AARP Foundation offers to help people understand and prepare their tax forms? What resources are available to people who may be doing their taxes themselves for the very first time?
Steve Conary: We offer coaching by IRS-certified volunteers for taxpayers using some free tax software. The various IRS free-file software packages that … you can access from the IRS website also include great guided preparation. So you really only need to answer some simple questions if you’re self-preparing. It does all the math, too, and as Erin mentioned earlier, e-filing continues to be the easiest and the safest and the fastest way to file a complete and accurate tax return.
Margi Mannix: Great. Thank you so much, Steve. We appreciate your sharing that information. It’s now time to address your questions about the impact of the coronavirus on your taxes and your finances with Erin Collins of the IRS and Deborah Owens of WealthyU. Jean, did we have somebody on the line?
Jean Setzfand: We do. Our first caller is Kay from Ohio.
Kay: I have a question about the stimulus return and income tax credit. You get $1,400 for the individual. Do you get $1,400 for the child, too?
Margi Mannix: Erin, do you want to take that question?
Erin Collins: Sure. Kay, yes, it depends on what the IRS calls your adjusted gross income. If that amount is below $75,000, you would get the full amount for a qualifying child and the full amount for yourself. As you go above the $75,000 of adjusted gross income, the amount is reduced down to zero by the time you hit $80,000. So individuals between that $75,000 and $80,000 will get a partial payment for themselves and a partial payment for their child.
Margi Mannix: Great thank you Erin, a common scam spikes around tax time every year. Criminals pose as the IRS calling for back taxes, and then they threaten arrest if it’s not paid immediately. What should someone do if they get that kind of call?
Erin Collins: Unfortunately, scams spike around this time of the year. So absolutely, be alert. First, you should know the IRS does not contact taxpayers by email, text message or using any sort of social media to request any personal information. The IRS should contact you by mail first, and they will never request local police to participate and they will never demand a credit card number. So if you’re hearing that, and if you have any doubt, just end the call; get their information; call the IRS, verify whether or not that is, in fact, an IRS employee; and that what their purpose is. We’re seeing a number of scams right now, anything from suspending Social Security payments, where they’re threatening to sue or seize your bank accounts; scams on requesting assistance for the disasters, trying to take advantage of people’s generosity. If anyone reaches out to you from a government agency that you were not expecting, please make sure you verify that that individual, in fact, works for that government agency. And when in doubt, call and verify. Unfortunately, one of the scams we’re seeing as a result of COVID has to do with unemployment insurance, and it is rampant throughout the entire United States. Fraud unemployment claims were filed in multiple states using someone else’s identity. So let’s say someone filed unemployment compensation or benefits under Erin Collins and used my Social Security number. What will happen is now I will get a Form 1099 indicating that I have unemployment insurance. If you receive that 1099, you need to reach out back to the state to get that corrected, and please do not report that to the IRS, because that is not your income. If you did not receive the income, do not include it on your tax return, but continue to work with the state agencies to have them correct that 1099 and submit a correct one to the IRS.
Margi Mannix: Oh my gosh. OK. I want to remind our callers we have a wonderful program in AARP called the AARP Fraud Watch Network. And we do have information about those two scams that Erin just mentioned on our website. You can find it at www.aarp.org/fraudwatchnetwork. If you don’t have access to a computer, you can also call during business hours; it’s 877-908-3360. Thank you so much, Erin, for that information. Now let’s turn to Deborah. Deborah, how has the pandemic impacted retirement savings, and how can people make up for losses if they lost their job, for example, and couldn’t save?
Deborah Owens: A couple of things … more than 33 percent of Americans actually withdrew or borrowed money from their IRA during the pandemic. But the good news is this, and I know it was mentioned earlier, but … with the Cares Act you’re allowed to withdraw up to a $100,000 without paying the 10 percent penalty that you would if you’re under 59 1/2. Certainly, I’m not suggesting someone do that, but we do know that people have been financially stressed. Unlike in the past where you only had 60 days if you took a withdrawal out of your IRA, you now have more than three years to pay that back. I know someone asked earlier about that. So that is the good news, right? Because that penalty typically is more than 10 percent if you were, if you had to take the money out. So that’s the good news.
And the other thing is that if you weren’t able to contribute to your 401k … and for many people, they had to kind of make a choice, right? In this environment the fact is — and I think Suze said it very eloquently — that in these uncertain times, most people really need to think about how can they replenish their savings or either start an emergency savings fund in the event that the economy does not recover.
Margi Mannix: Thank you so much, Deborah, for that practical advice. I know I speak on behalf of our callers and thank you so much for that. This has been a very informative discussion. Thanks to each of you for answering our questions. And thank you, our AARP members, volunteers and listeners for participating in this discussion.
We hope you’ve enjoyed listening to some of the best moments from this teletown hall. The full recording, and others, can be found in our show notes.
Thanks to our news team.
Producers, Colby Nelson, and Danny Alarcon.
Production Assistant Fernando Snellings.
Engineer, Julio Gonzalez.
Executive producer, Jason Young.
And of course, my co-hosts, Wilma Consul and Mike Ellison.
If you liked this episode, share it with a friend and become a subscriber on Apple Podcasts, Google Podcasts, Stitcher, or other apps. Be sure to rate our show as well.
For An AARP Take on Today, I’m Bob Edwards.
Suze Orman and a panel of finance professionals answered caller questions on savings, retirement and taxes in a recent AARP tele-town hall. Listen in as we discuss the critical queries asked and expert advice given.
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