In a Post Crisis Market, It's Time to Evaluate Your Finances

In a Post Crisis Market, It's Time to Evaluate Your Finances

May 24, 2020

As the economy starts to re-open as restrictions are starting to be lifted around the country, we think now is the time to evaluate your portfolio. Does your account need a second opinion? Maybe it needs a new approach, or a different viewpoint of the current market, and what it means for your portfolio. John Clawson, a financial advisor in Winchester, VA has the experience to help you make decisions to help your income work to your advantage.

The CARES Act and how it can help you

-Suspension of RMDs for inherited and traditional IRAs

Thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was passed in March by Congress, required minimum distributions (RMDs) are being waived for retirement savings accounts for 2020. This grants a reprieve for retirees, age 70 1/2 and older, who might otherwise be required to sell low and take distributions when the market is down. When deciding about whether to take advantage of this suspension, consider if the effects of the pandemic dropped you into a lower tax bracket. It might be advisable to take the RMD out of the IRA this year while you are in a lower tax bracket.

If you are younger than 59 1/2, this bill also allows you to take an early distribution, up to $100,000 from a  traditional IRA to pay for a coronavirus related hardship—such as job loss. This early distribution is also penalty free, but that does not necessarily mean tax free. If the money is then returned to the IRA in 3 years, the tax bill can be avoided. If not, the income taxes can be spread out over the three years beginning in 2020. Since there are no restrictions on how you can use the funds, this is a useful income management tool. If you live near Winchester, a financial consultant such as John Clawson, can help guide you through these new options.

-Mortgage Forbearance

Another benefit of the CARES Act is mortgage forbearance. The financial lives of many homeowners have been upended by the coronavirus. To help with this, homeowners with mortgages backed by the federal government are permitted to temporarily suspend their payments (forbearance) for up to a year. This includes loans backed by Fannie Mae, Freddie Mac, loans insured by the Federal Housing Administration, and those guaranteed by the Department of Veterans and the Department of Agriculture. Once the forbearance period is over, the skipped payments must be paid back. How this will be done will vary depending on your personal circumstances—such as who owns your loan. If you have a federally backed loan, there are several different ways to become current on your mortgage, and none of them require the entire lump sum to be paid back in a single payment.

Household expenses 

Another area in which to help make your income work for you is correctly budgeting household expenses. This can be particularly hard due to recent lifestyle changes and fluctuations due to the Coronavirus. Many aspects of daily life have changed, and consumer spending is no exception. With many expecting their household income to continue to fall, consumers had been less inclined to spend in the previous months. However, with more time being spent indoors, there was an increase in expenses in home entertainment, grocery, and household supplies. Categorizing and prioritizing your expenses can help free up some income and save you from withdrawing from your IRA.

Review your finances with a financial advisor 

You lived through the Coronavirus crisis. Time to be smart and review your finances now that the panic is over. You can make an appointment with financial planner John Clawson to review where you are now financially, and how to be prepared for a future crisis. 


This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. The information is based on data gathered from what we believe are reliable sources. It is not guaranteed by Waddell & Reed, Inc. as to the accuracy and is not intended to be used as the basis for any investment decisions. The information presented does not constitute a solicitation for the purchase or sale of any security and is not a recommendation of any kind. Waddell & Reed and its representatives do not offer tax or legal advice.  Please consult your tax, legal and financial advisors before making financial decisions. (05/20)