Answers to your questions

Many of you have sent me questions on a wide variety of topics, so for the next couple of weeks, I will answer the most popular queries.

Debt/deficit: A number of you are worried about how the trillions of dollars that the government is spending to help individuals, companies and the overall economy survive the pandemic will impact the nation’s finances. The short answer to “Should we worry about the federal deficit/national debt?” is: “Not now.”

According to the nonpartisan Committee for a Responsible Federal Budget, in an effort to combat the pandemic-induced recession, the federal government had little choice in spending money to mitigate the effects of the crisis. As a result, “debt and deficits will now grow much higher, to never-before-seen levels both in dollars and as a share of Gross Domestic Product (GDP).”

Most economists agree that government spending is really the only choice in the current environment. “Combating this public health crisis and preventing the economy from falling into a depression will require a tremendous amount of resources — and if ever there were a time to borrow those resources from the future, it is now,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. That said, after the crisis and recovery is complete, the country will have to address the debt and deficit. My guess is that this will occur through higher taxes.

Early retirement: COVID-19 has prompted a lot of you to consider retiring earlier than expected. Some of these decisions are voluntary, while others are forced because of the employment crisis. The first issue to consider is how you will address health insurance until you qualify for Medicare (age 65). The next step is to run the numbers. Can you manage to support yourself on the assets you have amassed, along with Social Security? Can you hold off claiming Social Security retirement benefits until your full retirement age? Until you an answer these questions with clarity, try not to make any big decisions.

Roth conversions: Some of you are experiencing a drop in earnings this year, which may be a reason to convert your traditional IRA into a Roth IRA. Remember that the money you have contributed to a traditional IRA (or any pre-tax retirement plan) has not yet been taxed. Converting into a Roth IRA means that the amount you withdraw and then convert is added to your income, and you have to pay taxes on it.

If you think that your tax bracket is likely to rise in the future — either because you will earn more money, or you think that the government will be forced to raise taxes to dig out of the aforementioned debt we have amassed — then paying the tax due at today’s rates on your traditional assets may save you money in the future. While converting your funds at current rates removes uncertainty in the future, it only works if you pay the taxes due from money outside of the retirement account.

Mortgage payoffs: Paying off your mortgage seems like a laudable goal, but there are potential pitfalls. Many of you who already are retired asked me about tapping your 401(k) accounts to pay off housing debt. That may not make sense, depending on your tax bracket. Others could only pay off the mortgage using all of the savings in the bank — a no-go on that idea too, because you don’t want to drain all of your liquid assets for the psychological benefit of being mortgage-debt free. But if you are able to afford the pay-off and still maintain plenty of liquidity, go for it.