Ponderings For the Week of June 29 to July 5, 2020

Stocks Battered by Virus Fears

Stock indexes lost in the range of 2% to 4% last week after reports of spiking Covid-19 cases in several states. Was it a continuation of the initial pandemic or the much-feared second iteration? Whatever it turns out to be, the nascent economic recovery is at risk.

Bank stocks were particularly volatile due to plans by the Federal Reserve Board to restrict banks’ ability to pay out profits to shareholders through dividends and stock repurchases. But the big mover was the rapid increase in new coronavirus cases and the jump in hospitalizations.

The decline in equity prices would have probably been worse had it not been for some positive reports on economic activity, durable goods orders, and new home sales. Jobs reports were mixed. As we approach a holiday-shortened trading week, the Wall Street action is likely to remain paranoiac.

 

How Will You Fare if You Have to Retire Earlier Than You Had Planned?

The statistics are scary. Among those who retire early, 40% do so involuntarily. Job loss is a major culprit, and may be more so as a result of the coronavirus pandemic, but unplanned early retirement may also be caused by health problems of the worker or having to care for a family member – a spouse or other relative in ill health or an aging parent.

You should prepare a retirement projection that assumes an earlier-than-planned retirement. Here’s how:

  • If you are in your 40s or younger. Prepare two projections assuming you will have to retire at age 55 and at age 60.
  • If you are in your 50s or older. Prepare a projection assuming you will have to retire next year. This is probably unpleasant to contemplate, but it’s better to find out in advance should such an eventuality arise.

There are numerous websites that have programs to help you prepare retirement income projections. Also, the Social Security Administration website, www.ssa.gov, can provide an estimate based on your earnings record of the impact of leaving the workforce early and/or a decrease in earnings later in your work life.

Unplanned early retirement may not be as financially deleterious as you may fear. Throughout your working years, everything you do with your financial planning and your career is geared toward an overriding objective – to be able to retire comfortably. The more diligent you are in these endeavors, the better able you will be to cope with an involuntary early retirement. Consider the following couple:

I left work several years earlier than planned. It’s one of those things that we thought only happened to other families. The financial impact wasn’t as severe as we had originally feared, thanks to health insurance and our savings. Looking back on this a decade later, my leaving work early was frightening at first and while it resulted in a somewhat lower standard of living, I’m really surprised at how well we can live despite the disruption in our financial and retirement plans.      

Smart Money Tips

  • There’s still time to make a 2019 IRA contribution. You have until July 15 this year to make an IRA contribution for the 2019 tax year. Even if you can’t come up with the maximum ($6,000 for those under age 50; $7,000 for, in the words of my children, the elderly), any amount will help. If you qualify, make a Roth IRA contribution unless you need the tax deduction allowed by making a deductible traditional IRA contribution. Even if you only qualify for a nondeductible IRA, do it anyway. You’ll thank me 40 years from now.
  • There’s also time to do a do-over of any required minimum distributions you have made so far this year.  As part of legislation to temporarily reduce taxes to help taxpayers cope with the impact of the coronavirus, required minimum distributions don’t have to be made in 2020, although many have already done so. If you want to rescind any or all distributions you have taken so far this year and avoid having to pay taxes on the distribution, you have until August 31, 2020 to do so. 

 

 

*******  Have an Enjoyable 4th of July  *******

 

                                                                                                                                       

 

 

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