The coronavirus outbreak, we know, is a health crisis and a national economic crisis. It’s also, for many Americans, a personal-finance crisis.
The 22% drop in the Standard & Poor’s 500 stock index since late February has shrunk retirement funds for those who had any. A MagnifyMoney survey found that 38% of investors are worried they’ll lose all their retirement savings due to the COVID-19 outbreak.
Millions have lost their jobs or on the brink of a layoff. More than 6.6 million Americans filed unemployment claims last week, which is a record. And in a SimplyWise survey, 40% of respondents said they’ve had their income reduced or lost due to the coronavirus.
Yet there are still mortgages, rents and utility bills to pay, not to mention groceries, gasoline and prescription drugs. What’s more, the Kaiser Family Foundation estimates the average cost of COVID-19 treatment for someone with employer-based insurance and no complications would be nearly $10,000.
I not only feel your pain, I’m living it. My income has been slashed due to cancelled (hopefully rescheduled) speaking events. And, although my retirement accounts are well-diversified, they’ve taken a hit. I’m a dedicated long-term investor, but I confess that I’m deeply concerned how long it might take the stock market to recover.
Take advantage of what the recent coronavirus stimulus laws offer you. Soon, you’ll likely receive a recovery rebate: up to $1,200 for most individuals and $2,400 for married couples. And if you’ve lost your job or have been furloughed due to COVID-19, you may be eligible for enhanced unemployment benefits. They include an additional $600 weekly payment above your state’s maximum, for up to 4 months. Unemployment benefits have also been extended by 13 weeks.
If your income has dwindled or evaporated, you may need to pull some money out of a retirement plan just to pay the bills and put food on the table.
Look for ways to slash your spending if you can. “Conserve and cut back on nonessential expenses,” advises Rob Williams, vice president of financial planning at Schwab Center for Financial Research.
He acknowledges that doing so may not be easy. “But now might be a time to cancel subscriptions or memberships,” he notes. Check your latest credit card statements; you may be being charged automatically each month for some subscriptions and memberships.
Call your cable provider and ask about discounts it may be offering due to the circumstances or switch to a less expensive plan. Your cell and landline phone provider might let you convert to a lower-cost service, too.
And hold off making non-essential purchases online.
If not, do what you can to add to your cash reserves to help you through this rough patch.
Take any extra money you’ll have from spending cutbacks and put it in your emergency fund.
If you must, make a withdrawal from a retirement account. I generally strongly recommend against doing this. But if your income has dwindled or evaporated, you may need to pull some money out of a retirement plan just to pay the bills and put food on the table.
My Next Avenue colleague Richard Eisenberg recently wrote about ways the $2 trillion stimulus law — the CARES Act — has removed tax penalties on some retirement-plan withdrawals. I encourage you to read his piece, “3 Ways the COVID-19 Stimulus Law May Help Your Financial Problems.”
The CARES Act also raises the amount you can borrow against your 401(k) plan to $100,000 or 100% of the account balance, whichever is less. And loan repayments due before Dec. 31, 2020 can be suspended for a year.
Voya Financial just started waiving its fees for 401(k) and other retirement plan withdrawals associated with the coronavirus and allowed under the CARES Act. Other financial firms may follow.
Consider taking money out of non-retirement investments you own. For instance, short-term or intermediate-term bond funds could come to your rescue, said Williams. You may owe commissions on these sales, but you’ve probably already paid taxes on the income distributions.
Look into tapping a home equity line of credit (HELOC). If you own a home, you probably have accrued equity — your home’s value minus what you still owe on your mortgage. You could get quick cash by borrowing against it through a HELOC, a line of credit for a set time period of, say, 10 years. The interest rate is often lower than on other loans. Recent average rate: 6.12%, according to Bankrate.com.
Refinance your mortgage. This will take some time and you’ll need a solid credit history. And you’ll want to run the numbers to see if the amount you’d save over time by refinancing would justify the closing costs. Financial experts generally recommend considering refinancing if you can get a 0.5 to 1 percentage point drop in your mortgage rate.
Ask about a mortgage deferment. Most mortgage lenders want to help struggling homeowners through this crisis. In fact, some banks are deferring mortgage payments up to 120 days due to financial hardship. Your lender might agree not to report any missed payments to the credit agencies during the pandemic.
According to the Consumer Financial Protection Bureau, the CARES Act requires lenders to tell credit bureaus that consumers are current on their loans if the borrowers have sought relief from lenders due to the pandemic.
Try to find lower-rate credit cards. If yours has a high interest rate, you might be able to find one charging less to keep your payments low.
Consider applying for a balance-transfer card that doesn’t charge a fee for moving over your debt. Look for one with a year or more of a 0% Annual Percentage Rate (APR) and aim to pay it off before that 0% grace period ends.
You’ll typically pay a transaction fee of 3% to 5% of the transferred amount. However, the long-term savings from the reduced rate can compensate for this fee.
Ask your credit card issuer about getting a higher credit limit. Sign in to your account and look for an option to make a request. Or call the number on the back of your card and ask a customer service rep.
Negotiate with lenders, if necessary. You may be panicked about not being able to make your bill payments due to a loss of income. If so, contact your creditors about a reduced interest rate or deferring or extending loan payments. Explain your situation and why you can’t make your regular payment.
If you’ve racked up late fees from missed payments, ask if they’ll be forgiven due to the pandemic. Some creditors might excuse fees if you’ll agree to make your monthly payments going forward or if you’ve always made timely payments in the past.
Investigate tapping your life insurance cash value. If you have a permanent life insurance policy, you typically can access part of your cash value (the savings part of the policy) through a withdrawal or loan. You have to pay interest on a policy loan, but there is no repayment schedule.
If you die with a loan outstanding, that amount gets subtracted from the death benefit, but is not taxable.
2 Big-Picture Tips
Finally, let me make two big-picture points:
First, emotions run wild when there are market swings like we’ve seen lately, and fear can tempt you to pull out all or much of your stock-market holdings. Don’t.
“If you are still working and healthy, stay the course,” said Williams. “Markets do recover.”
Try not to pull back on 401(k) contributions at work, even if your employer is one of the growing numbers cutting back or temporarily halting investment matches for employees.
In short, stay focused on your long-term financial objectives and how to reach them.
Second, talk to a financial adviser who can help you weather the storm. I recommend working with a fee-only financial adviser, rather than one who charges commissions, and one who is a fiduciary (which means the adviser puts your interests first).
My adviser helps ease my mind when markets gyrate.
“These are clearly stressful times,” Williams said, “and investing is stressful even in the best of times. So, having a plan, talking with someone and getting a roadmap can boost confidence right now.”
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