Your Financial Future
Corporate earnings are being reported by some of the country’s largest and best known companies. They are dismal as should be expected considering all of the stay at home orders. It is hard for executives to give actual predictions of earnings going forward. Today Disney announced huge losses as would be expected with closed entertainment parks and docked cruise ships. They have no idea when they can reopen and at what capacity. One bright spot was their streaming service with everyone staying at home.
Many companies are borrowing large amounts of debt to financial working capital. This will put added stress on their financials going forward. They have little other choice. It is estimated that close to 20% of the country could be unemployed soon. Less than three months ago we were at a fifty year low unemployment of just over 3%! Things will be tough. Things will not go back to where they were in January any time soon.
This week, we are going to discuss things you can do to make your family’s finances strong in the new normal. Taxes will have to go up a lot to pay for all of the necessary stimulus. We were already operating with a deficit and this situation cannot continue for long.
Over the last two years, there have been three major laws that affect financial and retirement planning. First was the Trump tax cut. The tax savings were scheduled to go away January 1, 2026. It could happen mush sooner because of the current crisis. Tax planning must be part of any financial plan. Most people do not do this. That can be very expensive mistake. It is not just how much you earn but how much you get to keep that is important.
There are a number of things to consider such as Roth conversions, tax harvesting charitable gifting strategies and asset allocation. All of these things can manage your tax liability.
On January 1st the SECURE Act became law. It had a number of provisions to help people save more for retirement. The age for required minimum distributions was moved back to age 72. This allowed people to have an extra year and a half before they had to pull money out of retirement accounts. You can always take more out. There were other provisions to make it easier to save money for retirement. Many people have not saved enough and that is why this became law with very broad bi-partisan support.
In March, the CARES Act was passed to help deal with the current crisis. It allows RMDs to be skipped this year if not needed to help recover some stock market losses. There were many other stimulus provisions in this law. Your financial plan needs to be updated to operate optimally in this new economic environment.
There are many things that we have no control over in today’s world and the new normal. What we must do is control the things we do have control over. This includes creating a written financial plan for our families. Making sure you have emergency money to fund six months of living expenses. Paying down debts so you are in a better financial position.
Making sure your investments match a new increased volatility and are appropriate for your risk tolerance and time frame. Stocks are likely to produce lower gains than we experience during the eleven year bull market. Don’t be greedy and have a plan. It might not be easy, but it is definitely doable if you stay the course.