Do you call the time BC (before Covid-19) normal? Do you join me in hoping that life can get back to normal soon, but have serious doubts about that? What if this is normal? I believe we need to talk about what we have learned and how we might think about going forward.
7 Things to think about now
- Ordinarily we financial planners are demonstrating the value of working longer, i.e. postponing retirement. But this month, we have been more engaged with evaluating those clients who are thinking of retiring earlier than originally planned. If you are eligible and have the assets or guaranteed income to retire now, this could be an attractive scenario. Of course, an early retirement nearly always results in less to spend for the rest of one’s life. I know that it might feel scary to even think about, but now would be a great time to determine the true cost of retiring now. Social security benefits factor into that and a Social Security Timing Analysis would be great place to start.
- Do you find one of the benefits of being quarantined is that you are spending less and saving more? If you are like many we have talked with, your expenses have dropped a lot over the past three months. (I have bought one tank of gas since February and I still have a fair amount of it left.) Perhaps you have some pent up demand to get back out to restaurants or to travel, but several people tell me that they have been surprised to learn what they can do without. That doesn’t bode well for our consumption and debt-based economy, but it could truly be our new normal. Could these past couple of months be a good representation of what retirement spending looks like? You should add in some fun however, just to be safe.
- Do you need a vacation? Like many of you, I still don’t feel safe getting on an airplane or cruise ship. The opening up of various countries is going to likely be pretty chaotic. Leaving the U.S. might be easy, but getting back in from some of the hot spots around the world could be harder in the coming months. We’ve heard more than one person plot their vacation with a plan to stay within a comfortable drive from home. Popular U.S. destinations could even get to be crowded, so if this is in the cards for you, plan early.
- Of course, it’s never fun to think about updating your estate plan, but we are in the middle of a life-threatening pandemic. If not now, when? We can help you review your existing plan by mapping the current estate structure into a flowchart. We would then make suggestions for you to discuss with your lawyer if you don’t like the results. That’s all I will say about that.
- I think you will agree that insurance of various types represents protection. It would be a good idea to review your current policies and to determine if you have the right type and the right amount. I was able to get my auto insurance premium reduced considerably with a revised estimate of how much I think I will drive in the next twelve months. It took about 15 minutes to save 15% and I didn’t have to switch to that popular company to do so.
- Is it time to re-finance? Consider how much debt is appropriate for your current circumstance. And while you are at it, consider the kind of debt and the interest rate on any debt that you carry. We heard about sub-3% interest rates on home mortgages this week. Prime is 3.25%. Refinancing current debt loads should probably be high on your list. You are going to hear a lot about personal de-leveraging (paying down debt) as we move into the new normal. We see a lot of people switching from 30 year mortgages to 15 year.
- Tax laws have changed a lot this year as a result of stimulus measures. Required minimum distributions from retirement plans have been waived entirely. If you have already taken your RMD, you can roll it back into the IRA and avoid paying the tax. You should likely consider a ROTH conversion this year. The first two estimated payments for 2020 have been delayed until July 15th, along with the filing deadline of 2019 returns. Student loan payments and interest have been deferred. The treatment of charitable contributions has changed. If any of these provisions could benefit you, a revised tax projection for 2020 and 2021 is in order.
It is so easy to let inertia set in and avoid any consideration of money issues. But as I’ve often said, “Better decisions today yield better outcomes tomorrow.” Your financial plan is your road map and it should be dynamic enough to handle multiple scenarios for casting a best-case, worst-case, and somewhere in the middle. If nothing else, these last three months should have been instructive in thinking about risk tolerance. We are here to help you with any of these things. Reach out with any questions. We are a phone call or ZOOM meeting away.
June 29, 2020