Over the last several months the world turned upside down. Information and data arrives in a volume and degree that our minds aren’t designed to efficiently process. It is overwhelming and feeds our feeling of losing control. For the safety and sake of ourselves and our loved ones, we are better off limiting the news sources we value and making fewer, but better, decisions. Depending on your own financial situation, following are five solid decisions to make right now.
Don’t take your Required Minimum Distributions – The CARES Act signed in late March was designed to distribute $2 trillion to individuals and business and bridge the quarantine to a reopened economy. It also included helpful retirement account changes. One of these changes eliminated the need for retirees over 70 ½ to take their Required Minimum Distribution in 2020. If you don’t need the money, leave it. Let those funds continue to grow.
Consider a Roth conversion – a Roth conversion transfers funds from a pre-tax retirement account, like a traditional IRA, to a Roth IRA. You will have to pay taxes on the conversion, but Roth IRAs have several advantages. One, when you pull those funds from your Roth IRA later in retirement, you can do so tax free. Two, if a Roth IRA is transferred to your heirs, they too can pull the funds out tax free. The benefit of a conversion when market values are down is the ability to convert more. Say you were thinking of converting $50,000 last December. You can now convert those same assets at a lower value, pay fewer taxes on the transaction, and let those funds grow in a tax-free account.
Keep funding your retirement plans – Every dollar you invest during the market downturn allows you to take advantage of lower market values, and will work in your favor as equity values increase.
Rebalance your portfolio – If you haven’t touched your portfolio all year, equity market declines have likely shifted your asset allocation away from your targets. Re-balancing is the disciplined process of periodically selling the outperforming assets and buying the under-performing assets, moving your asset allocations back towards your targeted allocations in the process.
Revisit your financial goals – This is the most impactful of this list and will provide the greatest sense of control in an uncertain world. If you work with a financial advisor, ask them to update your plan using new market values. Talk about whether any of your goals have, or should, change. Discuss any adjustments in your spending or investing patterns that may be warranted. If you need help, find a trusted advisor who can guide you. Families with a financial plan coming into the quarantine still encountered the same shock as everyone else, but that plan allowed them to focus on priorities and quickly regain control over their future.