Thursday, March 26, 2020

Six COVID-19 “Flipped Switches”

For the past seven months, I have been writing a book called Flipping a Switch. The book, which will be out by May, describes 35 “flipped switches (i.e., transitions) that people experience in later life. At the end of each chapter is a section called “How to Flip This Switch” with suggested action steps for each transition.

Three weeks into COVID-19 shutdowns, some of the “switches” that older adults face are issues many Americans are also facing right now. In some ways, it is almost like socially distancing workers have been forced into “retirement.” Below are six “flipped switches” with tips for navigating the tough times that lie ahead:

¨      Creating a “Paycheck”- Follow the lead of retirees who often “patch together” several sources of income when their formal paychecks end. Income sources may include unemployment benefits, savings withdrawals, side hustles, family loans, loans from retirement savings plans, and food from a food pantry in lieu of income.

¨      Adjusting to a Changed Income- Assess changes in cash flow. Many retirees live on less income than when they were working but some actually earn more with pensions, savings, and continued employment. If you have lost income, try to reduce expenses. If you have extra income, pay down debt and set aside some savings.

¨      Becoming Fraud Bait- Beware of COVID-19 themed frauds such as “free” (for a fee) home testing kits, bogus cures, government benefits, and other false claims. Just as older adults are a frequent target of frauds, so are all Americans when a catastrophic event like a pandemic occurs and scammers prey on people’s fears.

¨      Avoiding Too Much “Togetherness”- Identify “separate” and “together” activities when the “buffers” of work (and, for parents, school) are gone. Retiring couples often need to do this too. If you are working from home, create an efficient workspace and try to establish  “office hours” when you can work uninterrupted.

¨      Keeping Busy-Take advantage of extra free time and a slower pace of life to meet minimum recommendations for physical activity, spend more time with family and friends, work on hobbies, and start long-postponed projects, just as many retirees do. Feeling bored? Unleash your talents and skills in new ways. Research studies have shown that a little boredom can actually enable creativity and problem-solving skills.

¨      Staying Socially Connected- Take walks, alone or with a pet or friend, and converse with others at a safe distance. Also consider signing up for a free video-conferencing app to stay connected with others when you cannot physically be together. Isolation is a particular problem for older adults but it can happen at any age.

Wednesday, March 18, 2020

When Things Seem Out of Control, Control What You Can

Many things in our country now feel “out of control.” Between COVID-19, a now fragile economy and bear market, rising unemployment, closed schools and universities patching together online courses on the fly, companies facing staggering losses, and governments struggling with massive deficits, it seems like everything is quickly headed south. Very rarely have so many Americans been affected in so many ways: health, finances, relationships (social distancing), education, and more.

Research indicates that “feeling out of control” is a major cause of unhappiness and stress.  Most people don’t like living without at least some type of game plan. That’s why commuting always ranks high as a source of unhappiness. Commuters often run into unplanned obstacles such as traffic snarls, road closures, and weather-related incidents that force them to adjust their normal driving routines. Right now, many people are experiencing uncertainty and lack of control on so many fronts.

What to do?  There is really only one thing that we can do. When things seem out of control, control what you can. We cannot control COVID-19 or the stock market or the closing of schools, stores, and companies, but that does not mean we are powerless. Below are seven things that we can all do to reduce COVID 19 stress:

¨       Listen to CDC Advice-  Follow guidance from the Centers for Disease Control (CDC) to wash your hands often, avoid large crowds, and stay home as much as possible. A photo circulating on Twitter of two health care workers dressed in protective gear and holding two signs says it all: “I stayed at work for you” and “You stay at home for us.”

¨       Revise Your Spending Plan (Budget)- Update (or create for the first time) a budget that reflects a best estimate of anticipated changes in your income and expenses for the next few months as a result of COVID-19 related impacts on the economy. A spending plan worksheet is available from the Rutgers Cooperative Extension website.

¨       Practice Healthy Behaviors- Eat nutritious food, get adequate sleep, exercise at least 30 minutes daily, and quit smoking. Create a new workout routine at home or by walking outdoors if your gym has closed. Exercise has many benefits people need right now. It can help reduce stress, improve energy, burn calories, and boost your immune system.

¨       Try to Be Early- Time-shift shopping to buy food when supermarkets first open. Shortages of food and supplies are happening frequently and stores are closing earlier to restock their shelves. Be there early before supplies run low again.

¨       Find Local Resources- Seek out non-profit organizations and government agencies to help you. Examples include food pantries, utility assistance, and unemployment benefits. Thrift shops that remain open are another useful resource.

¨       Play the Goodwill Card- Take advantage of various “leniency” announcements for tax filing, interest rates, utility payments, school grades, and more. When so many people are affected by one crisis, there will always be some slack.

¨       Create New Routines- Develop a new weekday schedule for family members so everyone doesn’t feel so “adrift.” Include time for fun activities as well as telework and/or school assignments. Right now, many people are feeling the way retirees do on their first day of non-work. Putting some structure in your day can help reduce boredom and stress.

Thursday, March 12, 2020

Cost Basis and Capital Gains

Are you filing a tax return soon that includes income from investments? While stock market indexes have fallen dramatically in the last two weeks, many investors had capital gains in 2019 and are paying income taxes on them now. To calculate what you owe, you must understand some key terms like “cost basis” and “capital gain.” Below are five essential things to know:

Cost Basis- Cost basis is the amount paid for an investment including reinvested dividends and mutual fund capital gain distributions that are taxed in the calendar year that they are received. For example, if you buy 100 shares for $3,000 and, over time, reinvest dividends of $250 to buy additional shares, your cost basis is $3,250.

Capital Gain- A capital gain is the increase in value of a capital asset such as real estate or investments (e.g., stocks, bonds, exchange-traded funds, and mutual funds). In other words, people realize capital gains when they “buy low” (e.g., stock purchased for $10 a share) and “sell high” (e.g., stock sold for $20 a share). The difference between the cost basis of an asset and the amount for which it was sold is the capital gain (or loss).

Holding Period- Capital gains (or losses) may be short-term or long-term. A short-term capital gain is a gain on capital assets held for a year or less and a long-term gain is a gain on assets held more than one year. Both types of capital gains must be claimed on tax returns that determine an investor’s tax payment, but they are taxed very differently.

Taxation- Short-term capital gains are taxed as “ordinary income,” i.e., income based on an investor’s marginal tax rate, determined by tax filing status (e.g., single, married filing jointly, head of household, etc.) and household taxable income. Long-term capital gains are taxed at a lower capital gains tax rate ranging from 0% to 20%, depending on an investor’s taxable income and tax filing status. Ideally, investments should be held long term to receive more favorable tax treatment.

Tax Withholding- It is wise for investors, especially those with significant assets, to monitor their tax withholding status. If additional withholding is needed to cover taxes due on capital gains, investors have two possible strategies. One is to set aside a portion of their investment profit to pay quarterly estimated taxes to the IRS. The other is to adjust their W-4 form at work to have their employer take more tax withholding out of their paychecks with which to pay investment-related taxes.

Thursday, March 5, 2020

Thin File? No File? How to Build a Positive Credit History

I recently participated on a panel for a Twitter chat titled Common Questions About Credit, sponsored by Experian. Below are some key points about building a positive credit history when you do not currently have one.

¨       “Credit invisible” means someone does not have any recorded credit history with the “Big Three” credit reporting agencies or CRAs (Experian, Equifax, TransUnion). One in 10 adults (26 million Americans) are “credit invisible” according to the Consumer Financial Protection Bureau.

¨       “Thin file” is a phrase used to describe people with a limited credit history, which makes it difficult to generate a credit score. Having a “thin file,” like being credit invisible, makes it difficult for people to get approved for credit.

¨       Young consumers who have not previously used credit and have no credit history are often credit invisible. Immigrants to the U.S. also face this challenge. Like young adults, they have no prior credit history. In addition, people who have not had credit in their own name (for whatever reason) may be invisible to lenders.

¨       Credit invisibles and consumers with thin files face financial challenges. Consumers without a credit history may not be able to access utility services without making a large deposit. It may be very difficult to get a loan, get a cell phone, or rent an apartment without a credit history.

¨       Advantages of having access to credit include: the ability to buy something or do something today and pay for it later, flexibility to make purchases and take advantage of opportunities without cash in hand, fewer hassles and expenses to rent an apartment and get service credit from utility companies, and peace of mind that you have a back-up line of credit.

¨       Ways to build a positive credit history include: apply for a secured credit card, apply for a small (a.k.a., credit builder) loan of $300 to $1,000 over 6-24 months and make timely payments, get approved for a retail store or gas station credit card as a “stepping stone” to a bankcard, become an authorized user on the credit card of someone with a positive credit history, or ask a family member for assistance as a co-signer.

Individual Retirement Accounts: What You Need to Know

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