Retirement and sheltering in place

April 6, 2020

While we are in what is likely to be a worsening global pandemic situation, we remain optimistic that we will all get through this together.

Everyone should do their part and reduce the spread of this challenging virus. When we have this extra time, it is good to stay busy.

Here are a few items we are working on with our retired clients, and you can be proactive and work on them too.

Retirement design – The cornerstone to every well-planned retirement is your annual list of expenses. If you know what they are now, what you are doing over the next three years, and what one-time expenses you have upcoming, you can plan properly. If you are sheltering in place, there is likely a reduction in your lifestyle expenses, and you could potentially reduce any withdrawals you might be making from retirement accounts. This can reduce losses you might incur from selling while the market is down. Reducing withdrawals may also reduce your income taxes.

Cash reserves – If you hadn’t already set aside enough in your investment accounts to cover at least a couple years of your monthly distributions during a market downturn, you may think it’s too late. However, many people are investing in fixed income and bond positions outside of their stock investments. This may be a resource for continuing to take monthly withdrawals if needed. Great care is needed in making these decisions depending on what type of bond positions you have, as even your bond holdings may have dropped in price. Also, depending on your unique asset allocation, you may not want to deplete your bond positioning. A careful review of your more stable investments and cash is in order.

Required minimum distributions suspended – If you were required to take minimum distributions from your IRAs and retirement accounts, these have been suspended for the remainder of 2020. Reducing or even eliminating these minimum distributions can reduce your taxes for 2020. For some who have taxable Social Security benefits, this can be a significant way to reduce your taxes, especially if you have cash or other less-taxable accounts from which to draw.

Stay up to date – Most of us have more extra time at home than usual, so what better time for learning? There are hours of fantastic podcasts to take in, offering audio updates, lessons, tips and strategies similar to radio shows. They are easily accessed from websites or on iPhones, for example, from your podcast app.  Search Google for “retirement podcast” and you’ll get quite a few. For a sample, our company podcast on retirement strategies is on our website at Help yourself!

Roth conversions during down markets – For the savvy adventurer, you should at least consider the possibility of converting your Traditional IRAs and retirement plans to Roth accounts. This requires you to pay income tax on the amount of the IRA you convert; therefore, this should not be done on your own, without careful analysis and preferably professional planning. The basic idea of converting while the market is down is that you can convert more shares at a lesser value. If you convert $50,000 which used to be $60,000 in value hypothetically, you can convert at a lesser tax cost. The taxes may be $10,000 or more, so ask your CPA or tax preparer before doing this. So, after taking out the tax cost you might have $40,000 left over. If history works as a guide and the market recovers within a couple years, you may have your $50,000 again, and maybe soon after your $60,000, now in a Roth IRA and tax-free. Roth IRAs are not subject to required distributions, to add to the benefit.

With so much time on our hands, there may be a lot of productive tasks we can get done. Stay safe, stay home, stay healthy. We hope you might make some great use of the extra time at home too.

Eric Johnston, CFP, is with InFocus Financial Advisors, Salisbury, Md. The views are those of Eric Johnston and should not be construed as specific investment advice. Past performance is not a guarantee of future results.

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