Strategies for income uncertainty during coronavirus
Financial planning during normal times can be difficult enough. In crisis and times of uncertainty such as those we are now experiencing, it can become even more challenging. This applies both to individuals and families who have resources to weather the storm and those who struggle with greater odds and in ways they never did before.
For Americans who have been receiving an additional $600 weekly in unemployment compensation, that additional safety net ended July 31. Because of delays in processing, some recipients received their first unemployment checks later than expected or have not received them yet. The basic unemployment compensation benefit received through the state continues after July 31 but at a rate much less than salary, assuming there is a business employer to return to. Protection from eviction for renters ended at the same time as the unemployment compensation supplement since both of these provisions of the federal CARES Act expired at the same time. There may be federal legislation to replace them but, at the time of this writing, that has not happened yet. In a totally different area, tax law, major changes to the tax laws affecting withdrawals from retirement accounts, as just one example, add to confusion regarding which path to take.
One point is clear — the Covid-19 pandemic did not bear equally on individuals, families and businesses. Some, as in the technology sectors, actually grew and prospered. Some businesses obtained PPP loans with generous terms for forgiveness. Even there health concerns dramatically changed the way individuals and companies conducted business which added to anxiety and, in many cases, cost. Additionally, many Americans — especially in the health care industries — work under conditions where their health is at risk on a daily basis.
The first step in developing a plan is to consider what you have either immediately or readily available. … Consider any other sources of income you can tap into or even resources you might sell.
Business that were more critically injured include small businesses, retail, hospitality and restaurants that have had crushing losses from which some might never return. All of this has called for creative solutions, if possible, and definitely for planning where possible. The temptation is to freeze and not take action but there are some steps that can help.
• Consider your resources. The first step in developing a plan is to consider what you have either immediately or readily available. This includes checking, savings, mutual funds, brokerage accounts and other readily available assets. If all you have is a checking account, you are not alone, but consider any other sources of income you can tap into or even resources you might sell. You may have a talent or skill you can charge for or be able to obtain a parttime job. If you have had an emergency fund, this is the time to consider whether to use it. If not, then consider whether, when times are better, to direct small automatic predictable transfers from your regular account to savings to save for future needs.
• Decide whether there is a need to tap into retirement and less accessible funds. Although some changes have been made in the tax laws to make retirement funds such as IRA’s and 401(k)’s more readily available without penalty, recognize that withdrawals from these accounts not only can have tax consequences but also reduce what you have for the future. But still they are a source if absolutely needed.
• Limit borrowing and credit card debt, if possible. If not, build it into your plan for repayment. Paying by credit card is tempting but at rates that could be as high as 25% or more, credit card debt that continues can make it that much more difficult to get out of debt later. If needed, it is a possibility but as part of the plan. Another form of debt is tapping into home equity. The interest rate is going to be lower than credit card debt and monthly payments might not be that high but remember this is a loan against the house.
• Consider your needs. If you have monthly automatic withdrawals from your accounts, you might take a look through to see whether some of those are unnecessary and can be cancelled. Food, shelter, and medical come first. Then see what you need and what you might do without.
The economy is trying to sort itself out and individuals, regardless of their circumstances, need to plan with what they have more than ever before.
Janet Colliton, Esq. is a Certified Elder Law Attorney and limits her practice to elder law, retirement and estate planning, Medicaid, Medicare, life care and special needs at 790 East Market St., Suite 250, West Chester, Pa., 19382, 610-436-6674Call via Mitel , colliton@ collitonlaw.com. She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, cofounder of Life Transition Services LLC, a service for families with long term care needs. Tune in on Wednesdays at 4 p.m. to radio WCHE 1520, “50+ Planning Ahead,” with Janet Colliton, Colliton Elder Law Associates, and Phil McFadden, Home Instead Senior Care.