Whether you are just entering the workforce or winding down toward retirement, COVID-19 has likely affected both your professional and financial life. For those between the ages of 62 and 70, you have the opportunity to begin claiming your Social Security benefits, whether you were planning to or not. While this “safety net” of sorts could be an appealing opportunity to replace the income you may have lost due to the current pandemic, it is a decision that requires much thought and analysis. Here are a few things to consider before deciding whether or not taking your Social Security benefits earlier than expected is right for you during these uncertain times.

Considerations to Make Before Taking Social Security During COVID-19

If you weren’t already planning on claiming your Social Security benefits soon, then take the time to review your other options first. Even though you are eligible to begin receiving benefits at age 62, your benefits will increase with every year you wait until age 70. While it’s tempting to take the money now, you could be missing out on thousands of dollars in future Social Security benefits.

Is There Other Income I Can Use?

If you’ve been saving diligently for retirement, you may already have the funds tucked away to get you through the foreseeable future. Review your 401(k) and IRA accounts, and remember to account for income through any pension plans you may have through work. After taking stock of these accounts and any emergency funds you have saved away, you may determine that claiming Social Security benefits early is not necessary. Even putting off claiming your benefits by six months or a year could make a considerable difference in your future benefits.

It’s also important to consider that if you’re earning less now than you were in previous years, you’ll likely be in a lower tax bracket come tax season 2020. This would make now an advantageous time to tap into your retirement savings accounts, as your tax obligation on this income may be lower than if you had worked full-time in a normal year otherwise.

Have I Applied for Unemployment?

The CARES Act was passed at the end of March in response to the detrimental financial impact COVID-19 has had on Americans. As a part of this legislation, the government boosted unemployment benefits, offering eligible unemployed individuals an additional $600 per week for four months on top of their normal benefit amounts. In addition, this bill allows unemployed individuals to receive benefits for an extended period of 13 weeks.¹ 

If you were laid off or furloughed as a result of COVID-19 and have yet to look into receiving unemployment benefits, you may want to do so immediately. This income may be sufficient in covering your expenses until you’re able to work again.

What if My Other Options Are Limited?

It may be necessary to begin claiming Social Security benefits early if you’ve exhausted other resources, or you don’t have much savings to begin with. For example, your primary alternative may be to remove funds from your portfolio. But with the onset of COVID-19, markets are volatile and values have dropped significantly. If at all possible, it may be better to leave your assets where they are as long as possible in an effort to recoup recent losses. Either way, this is a decision you’ll want to make with your financial advisor first.

However, if your only other alternative is to rack up high-interest debt, taking the Social Security benefits early is almost always going to be the preferred choice. Falling into a deep hole of debt is not an easy position to overcome, and certainly not an ideal way to start your retirement.

Important Notes About Taking Social Security Early

If you do choose to take Social Security early to help ease the financial burden of losing your job, there are a few important things to remember.

The Impact of Working While Receiving Social Security

What happens if you begin claiming Social Security, but you get your job back? If you begin working again or find a new job, you may be subject to having a portion of your benefits withheld. This would be based on how much you are making above the SSA’s exempt limit. The SSA uses a retirement earnings test to help determine this amount.²

Withdrawing Your Application to Receive Social Security Benefits

You could choose to withdraw your application for benefits within 12 months of becoming entitled to retirement benefits. For example, say you’ve chosen to take benefits now in the midst of COVID-19 because you were furloughed or laid off. In a few months from now, if your financial situation has turned around and you’re earning again, you might choose to withdraw your application.

This would mean you’d stop receiving Social Security payments, and would essentially “reset” them. When you choose to receive them again later, that future date would be the date that determines how much you receive. If you choose this route, however, it’s important to note that you would be required to pay back any benefits you had already received.³

Even though claiming Social Security benefits now to address your sudden loss of income may be tempting, it’s important to take some time and consider all of your options. It may be the best move for some, but others could be robbing their future retirement unnecessarily. If you find yourself in this position or have any questions about taking your Social Security benefits earlier than expected, please contact us.  We are here to help!

The coronavirus has affected us all in many ways.  This pandemic has had an immense impact on our physical well-being and our mental health, as well as our finances. This virus has spread throughout the globe and as many businesses are forced to cease operation, people worldwide are losing jobs at record rates.

Roughly 22 million Americans filed unemployment claims over a four-week period starting March 14 – marking a record-breaking high for the U.S. Department of Labor.¹ These numbers are unprecedented as everyone everywhere struggles to make ends meet amidst this widespread pandemic.    

For those struggling financially, how do we begin recovering from this? Here are some critical next steps for those impacted by the first-hand economic effects of the COVID-19 pandemic. 

Step #1: Reevaluate Your Spending 

Whether you suddenly have a stop in income, a decrease in your paycheck or you’re now reliant on financial assistance from the government, any change in your normal cash flow is a reason to look at your spending.

Even though it may seem obvious, it should be done immediately and with care. You should look over your weekly or monthly budget to determine any non-essential costs that can be eliminated. Since many businesses you may have frequented are likely not open anyway, you should consider reallocating any money normally budgeted for this to cover other necessary expenses.  Any money that may have been budgeted for a night out at a restaurant or a movie ticket could be used to start or contribute to an emergency fund instead.

Step #2: Acknowledge the Change

These times are unprecedented and are affecting the lives of nearly everyone across the globe. We are all fighting the spread of a deadly virus while people in a wide variety of industries – hospitality, retail, food, travel and more – have been left jobless for the foreseeable future.

Our current circumstances are likely to have made many stressed, angry, sad and devastated emotionally. When it comes to standing tall and moving forward financially, the sooner you can recognize the emotional toll these global events have had and come to terms with the “new normal,” the sooner you can begin planning ahead. 

Part of this acceptance is recognizing any bad habits you might have, specifically financial spending habits triggered by stress. If you like to “take the edge off” with online shopping or use eating out as a way to cheer yourself up, now is a good time to practice restraint.  When you become aware that these are emotional responses, you can try to come up with other ways this money may be better spent, such as paying off debt, putting it into savings or creating an emergency fund.  

Step #3: Be Aware of Changing Policies

Both federal and state governments have been working hard to accommodate out-of-work citizens. Legislation has been passed in an effort to amp up benefits for unemployed individuals.  Some local governments have made it illegal for power and utilities to be shut off due to a missed payment during the pandemic and others have urged landlords to halt rent payments temporarily.

Even some insurance agencies and gyms have paused memberships or reduced rates in an effort to accommodate out-of-work individuals. Given the current situation with so many struggling, many companies have created more lenient payment policies. If you are unable to pay certain monthly bills, you should begin contacting those companies or agencies immediately since they may be willing to assist you.  

The COVID-19 pandemic has created a great feeling of uncertainty about the future for most of us.  If you are struggling financially, you are certainly not alone. There are resources available to you now, such as stimulus checks and unemployment insurance, to help make this time a little easier. However, if you still have concerns about how to move forward financially during these trying times, please contact us. We are here to help and we are all in this together!

1. https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20200632.pdf

Earlier today (Friday, April 24, 2020), President Donald Trump signed the Paycheck Protection Program and Health Care Enhancement Act. This additional $484 billion relief package comes less than a month after the historic $2 trillion Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which offered relief funds for businesses, families, unemployed individuals and others affected by the current pandemic. This new legislation is more restricted in scope, focusing primarily on replenishing funds for the Paycheck Protection Program and offering more financial relief for hospitals and healthcare workers across the country. The specifics of this relief package and how it may pertain to you, your business and your local healthcare facilities are detailed here.

Hospitals, Health Systems & Care Providers

This bill is allocating an additional $75 billion to go toward hospitals, health care providers and systems across the United States. As a part of the “Public Health and Social Services Emergency Fund,” this money is meant to reimburse providers for related expenses or revenue lost as a direct result of COVID-19.¹ This money can not be used in cases where reimbursements have already been received through other means.  Providers who provide diagnoses, treatment or care for individuals with possible or actual cases of COVID-19 are eligible to access these funds. 

Such healthcare providers include:

• Public hospitals
• Medicare and Medicaid enrolled suppliers or providers
• For-profit hospitals and healthcare providers
• Not-for-profit hospitals and healthcare providers¹

Research and Testing For COVID-19

In addition to the above, the “Public Health and Social Services Emergency Fund,” will receive $25 billion “to prevent, prepare for, and respond to coronavirus” in the form of research, development, manufacturing, purchasing, administering and testing individuals who may be currently infected or previously exposed to the virus.¹ This fund is also meant to help healthcare providers procure additional protective equipment necessary to administer tests safely. 

Here’s how the $25 billion will be split amongst healthcare facilities and researchers:

• $11 billion for states, localities, territories, tribes, tribal organizations, urban Indian health organizations or health service providers to tribes.
• $4.25 billion for states, localities and territories to be divided formulaically based on the relative number of COVID-19 cases.
• $2 billion to states, localities and territories in accordance with the Public Health Emergency Preparedness agreement. 
• $1.8 billion for the National Institutes of Health – Office of the Director.
• $1 billion for the Centers for Disease Control and Prevention (CDC).
• $1 billion to assist healthcare providers testing uninsured patients.
• $1 billion for the Biomedical Advanced Research and Development Authority.
• $750 million for tribes, tribal organizations, urban Indian health organizations or health service providers to tribes, in accordance with the Director of the Indian Health Service.
• $600 million in grants through the Health Resources and Services Administration – Primary Health Care.
• $500 million for the National Institutes of Health – National Institute of Biomedical Imaging and Bioengineering.
• $306 million for the National Institutes of Health – National Cancer Institute.
• $225 million for rural healthcare clinics looking to expand their COVID-19 testing capabilities.
• $22 million for the “Department of Health and Human Services – Food and Drug Administration – Salaries and Expenses.”¹

The Department of Health and Human Services Secretary will also be required to issue a report every 30 days that includes the number of cases, hospitalizations and deaths as a result of COVID-19. In these mandatory reports, the Secretary will be required to provide distinguishing demographic characteristics such as race, sex, age, ethnicity, etc. until the health emergency has ended.¹  

The Paycheck Protection Program

This new legislation will make an additional $320 billion available to businesses affected by the COVID-19 pandemic. As a reminder, the Paycheck Protection Program is designed to assist small businesses with 500 or fewer employees. Qualifying businesses may receive up to $10 million in loans administered by banks or other lenders, and the interest rate would not exceed one percent.² 

The Paycheck Protection Program offers qualified employers the potential to receive loan forgiveness if at least 75 percent of the money received is used to maintain payroll through June of 2020. They may also use the loan to pay interest on mortgages and rent and utilities.² In order to be eligible for loan forgiveness, the business must maintain the same number of employees (equivalents) in the eight weeks following the date of origination of the loan as it did from either February 15, 2019 through June 30, 2019, or from January 1, 2020 through February 29, 2020.³ 

Small Business Administration

$62.1 billion will be granted to the Small Business Administration to assist small businesses who have been hit hard by the current pandemic.¹ 

This amount will be broken down by:

• $2.1 billion in salaries and expenses
• $50 billion for the “Disaster Loans Program Account” to cover the cost of direct loans authorized by the SBA
• $10 billion for emergency EIDL grants¹   

The newly passed Paycheck Protection Program and Health Care Enhancement Act is designed to assist those who have been hit hard by this global pandemic – small businesses forced to cease or reduce operations and healthcare providers on the frontlines. If you’re a small business owner hoping to take advantage of these available funds, refer to official government sites, such as the SBA’s Guidance & Loan Resources for further assistance.

As always, if you have any questions for us during this unprecedented time, please contact us – we are here to help and are all in this together!

1. https://www.congress.gov/bill/116th-congress/house-bill/266/text
2. https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program#section-header-4
3. https://www.congress.gov/bill/116th-congress/house-bill/748/text

Last month, I had the privilege of being a guest on the Rockville Chamber of Commerce Member Spotlight Podcast hosted by Eric Peguero.  I am honored to be a part of the Chamber and was grateful to share some of my financial insight with Eric.  You can listen to the episode here.

As the coronavirus pandemic has emptied out U.S. streets while Americans stay home, there are less drivers on the road.  Less driving means fewer car crashes and fewer car crashes means big savings for auto insurers. Two car insurers in the U.S., Allstate and American Family Mutual, have decided to pass those savings along to their customers.  

Allstate, the country’s fourth biggest car insurer, said it would give back $600 million in total to customers and American Family Mutual is planning to refund $200 million.  Both insurers have seen a huge drop in accidents as more and more people stay at home and off the roads. Compared with last year, claims were down 20% to 40% weekly from March 11 through April 3. In addition, the insurers estimate that policyholders drove 40% fewer miles in the last three weeks of March. With millions of households financially strapped during the lockdown, the refunds come at a good time for many.

Allstate will pay customers back in two ways – drivers in quarantine will receive refunds while most customers will be given a 15% discount on monthly premiums for April & May.  American Family is returning $50 per insured vehicle. Many insurers are extending payment plans and waiving late fees as ways to help customers through the tough times and Allstate said it also is providing its identity-theft product free for the rest of the year “to all Americans.”

The refunds of these two companies could put pressure on other insurers to also follow suit due to the decrease in driving.  Some other insurers, while not yet offering across-the-board pandemic rebates, can adjust premiums on a case-by-case basis for drivers who are suddenly not driving.  

With the amount of commuters now working from home, quieter roads lead to fewer accidents and therefore, fewer claims. Since the auto-insurance industry is a rare bright spot while many other industries flounder right now, it’s nice to see them passing some of their savings along to their customers.  For those stuck at home and struggling financially, these refunds are sure to help. However, if you have essential work that keeps you on the road, stay safe out there!

The legislation includes a number of proposals aimed at supporting small businesses.¹ For those hit hard due to forced closures and a sharp downturn in foot traffic, this bill may provide some relief.

What Does the Package Include?

American small businesses are supported by the recently passed CARES Act in the following ways:

• A $350 billion forgivable loan program (The Paycheck Protection Program) designed to encourage small businesses from laying off employees.
• A delay in employer-side payroll taxes for Social Security until 2021 and 2022.
• 50 percent refundable payroll tax credit on worker wages to incentivize businesses, including those with fewer than 500 employees, to retain their current workforce.
• Sole proprietors and other self-employed workers may be eligible for the expanded unemployment insurance benefits the bill provides.
• A portion of the $425 billion in funds appropriated for the Federal Reserve’s credit facilities will target small businesses.²

How Does the $350 Billion Paycheck Protection Program Work?

Under the stimulus package, the Small Business Administration (SBA) will oversee the Paycheck Protection Program. This program will distribute $350 billion to small businesses that meet certain requirements, and the loans will be made available to companies with 500 or fewer employees.³ 

Businesses can receive loans up to $10 million, and these loans will be administered by banks and other lenders. Additionally, the Paycheck Protection loans will carry a maximum interest rate of up to just four percent.²

Currently, the SBA guarantees small business loans that are distributed by a network of more than 800 lenders across the country. The program creates a form of emergency loan that has the potential to be forgiven when used to maintain payroll through June of 2020. In order for the above amounts to be forgiven, the business must maintain the same number of employees (equivalents) in the eight weeks following the date of origination of the loan as it did from either February 15, 2019 through June 30, 2019, or from January 1, 2020 through February 29, 2020.¹ The program also expands the network beyond the SBA so that more banks, credit unions and lenders can issue the appropriate loans.

If your business uses the loan funds for the approved purposes and maintains the average size of your full-time workforce based on when you received the loan, the principal loan will be forgiven, meaning you will only need to pay back the interest accrued.² The primary purpose of these loans is to incentivize small businesses to refrain from laying off workers and ultimately rehire laid-off employees that have already lost jobs due to COVID-19.

What Types of Businesses Are Eligible For The Paycheck Protection Program?

The Paycheck Protection Program offers loans for small businesses with fewer than 500 employees, 501(c)(3) nonprofits with fewer than 500 workers and some 501(c)(19) veteran organizations. Food service businesses are also eligible if they employ fewer than 500 people per physical location.¹ 

Self-employed individuals, sole proprietors and freelance or gig economy workers are also eligible to apply for financial assistance during this time. Even without a personal guarantee or collateral, businesses that are struggling can receive a loan as long as they were operational on February 15, 2020.²

Eligible borrowers are required to make a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19.

How Do I Get a Payroll Protection Loan?

The loan program will provide loans through SBA-approved private lenders. As banks are currently working on implementing this program, it’s important to check with your local bank to see where they’re at in the process. Those that are already approved by the Small Business Association may be quicker to put the loan program into place.

As a small business owner or self-employed individual, it’s always important to be aware of your options during challenging times. By using some of the new programs recently enacted, and the promise of keeping your workers employed, your small business can continue to thrive.

As always, if you have any questions related to The Paycheck Protection Program or if you have other concerns, please reach out – we are here for you!

1. https://www.congress.gov/bill/116th-congress/house-bill/748/text
2. https://www.help.senate.gov/imo/media/doc/CARES%20Section-by-Section%20FINAL.PDF
3. https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package

As part of the CARES Act, some of the rules about taking money out of your 401(k) are being temporarily lifted to help people affected by the coronavirus pandemic. While the added flexibility may help some ride out the crisis, there is some concern that some might be tempted to take out huge sums now—and, as a result, either put their eventual retirements in jeopardy or possibly leave themselves with a big tax bill.

Here is some important information regarding what has changed and how to approach your 401(k) as it relates to these changes.

What is a coronavirus-related 401(k) distribution? Is it really a no-penalty withdrawal?

One provision of the CARES Act relaxes the rules for taking money from your 401(k). Investors of any age can take out a “coronavirus-related distribution” of as much as $100,000 (or up to 100% of the balance) without paying early withdrawal penalties. The act also increases the maximum “loan” from your 401k to this amount (previously that was limited to $50,000 or 50% of an employee’s balance).

Who is eligible for a 401(k) coronavirus-related distribution?

Your company’s 401(k) plan sponsor will determine whether coronavirus-related distributions will be permitted, whether you meet the criteria for this type of distribution, and whether the amount you request fits the hardship you are facing.  Anyone who has contracted the virus, has had a spouse or a dependent contract the virus, or has experienced financial hardship because of it, would be considered eligible.

Is a coronavirus-related 401(k) distribution a loan?

No. Unlike a 401(k) loan that must be repaid, a coronavirus-related distribution does not need to be repaid. Employees can repay the distribution within three years without regard to annual contribution limits for their 401(k) plans, and that the repayment does not need to be made all at once. Any repayment of the distribution would be treated as a “rollover contribution” to the plan. But, any employee who takes a coronavirus-related distribution and does not pay it back will owe tax on the amount, through they will be able to pay the taxes owed over a three-year period.

Is it a good idea to take this new 401(k) distribution?

You should only take distribution from your 401(k) now if it’s your only option. The point of a 401(k) is that you are investing the money over a long-term period, so that the power of compound interest works in your favor throughout your career. So, since you’ll likely have to liquidate stocks to take money out now, this means selling when the market is down significantly.

Should I take my regular 401(k) distribution this year?

Another major provision under the CARES Act, is that required minimum distributions (RMDs) have been waived this year. If you can afford it, you should take advantage of not taking the distribution this year.

What if I take a 401(k) coronavirus-related distribution and then get laid off or furloughed?

Typically, if you take a loan from your 401(k) and then leave your company, you usually have to pay the money back immediately, or else it is considered a taxable distribution. But under the CARES Act, if an employee takes a coronavirus-related distribution and then leaves the company, the employee would not have to pay the distribution back.

If you are laid off, furloughed, or your hours are cut, you can only contribute to your 410(k) if you are still getting a paycheck. Also, if employees are being paid emergency sick leave or expanded family and medical leave under the Families First Coronavirus Response Act (FFCRA), those payments are eligible for salary reduction contributions to a 401(k) plan.

How is a 401(k) coronavirus-related distribution different from a hardship distribution?

Most plans allow for “hardship distributions” in, say, the case of a major medical event. But these differ from the current coronavirus-related distributions since they are taxed in the year taken, cannot be repaid to the plan, and are limited to the amount necessary to meet the financial need.

Should I keep contributing to my 401(k)?

If you can keep up contributions—or even increase them—during this time, you should.

What are the 401(k) contribution limits for 2020?

At the end of last year, the IRS announced that for 2020, the maximum contribution for individuals in 2020 would be raised to $19,500. The so-called “catch-up” contribution for employees age 50 and over was raised to $6,500. The limits on annual contributions to an IRA remained unchanged at $6,000 per year.

Does my employer have to keep providing a 401(k) contribution match?

There’s nothing in the CARES Act that addresses this.  Employers can amend their 401(k) plans to stop making matching contributions and they should promptly notify employees of any changes.

If you have any questions relating to your 401(k) or have other concerns about your finances, please feel free to call us – we’re here for you during these challenging times.

The $2 trillion economic relief plan impacts almost every layer of American life, including your retirement plan.

Here are some important components all workers currently saving for retirement and retirees need to know.

Required Minimum Distributions are suspended for 2020 for IRA’s and workplace plans.

The formulas for these distributions were calculated on 12/31 when the market was much higher than it is currently, so investors would have been forced to sell stocks that had substantially depreciated. RMD’s are typically mandatory, but not in 2020.  The suspension gives additional time for the market to potentially recover.

The new rule even enables those over the age of 72 who are more fortunate and have significant outside assets to avoid their forced distributions as well.

At this moment, it’s unclear if inherited/beneficiary IRA RMDS are suspended since the IRS has yet to give definitive guidance on this issue.

Up to $100,000 will be allowed to be withdrawn penalty-free from workplace or I.R.A. accounts

The package eliminates the 10% penalty for individuals under 59 1/2. Regular income taxes still need to be paid on withdrawals but can be spread out over three years from the date of the original withdrawal.

Another benefit is that you can reimburse your withdrawals before the three years are up. This amount is far above the standard contribution rates. Usually, it’s a bad idea to prematurely withdraw funds from a retirement account, but if a matter of survival, this may serve as a lifesaver for many people as a bridge loan until the economy rebounds.

This carve-out only applies to coronavirus-related withdrawals. According to the New York Times:

You qualify if you tested positive, a spouse or dependent did or you experienced a variety of other negative economic consequences related to the pandemic. Employers can allow workers to self-certify that they are qualified to pull money from a workplace retirement account.

Borrowing limits have been increased for workplace plans

The limit has been increased from $50,000 to $100,000 for 180 days after the bill passes. In order to take this loan, you’ll need to prove that your life has been affected by the Coronavirus. In addition, if you already have a current balance and were obligated to pay it back by 12/31 you’ll get an additional year, but you can’t borrow from your IRA.

Source: Financial Planning

The stimulus package created many new possibilities for leveraging retirement accounts – especially for families desperate for funds to keep a small business alive or cover loss of employment.  For those that might be ok financially, this package offers additional tax planning strategies.  If you have any questions relating to your retirement funds or other financial questions during these challenging times, please give us a call.