Tuesday, February 23, 2021

Re-Emerging from “A Quarantine State of Mind”


The milestone statistic yesterday was startling. Over 500,000 Americans have died as a result of COVID-19. This is truly a staggering loss for the loved ones of the deceased and for the United States as a whole. What a loss of potential and human capital as people of all ages and occupations with different skills, contributions, and talents are gone.

When I made the final revisions to my new book, Flipping a Switch, on May 30, 2020, just over 100,000 people had been taken by the pandemic. At that time, I wrote “Even more frightening is the fact that the duration, severity, and lethality of COVID-19 are unknown at this time.” Unfortunately, that statement is still true today, almost nine months later.

Nevertheless, there are glimmers of hope and progress. According to an NPR article, updated today, more than 64 million vaccine doses have been administered to 13.3% of the U.S. population. Of that group, 5.9% of Americans have received both doses. Absent winter storm delays, the current rate of vaccine distribution is over 1.6 million shots per day.

It is now time to start looking ahead to life after COVID-19. In fact, some people are already starting to do that.

In the 55+ community where I live, some residents are fortunate enough to have already received their two vaccine shots. They are now starting to ask questions on the residents’ Facebook page like “Is it OK to travel again?” and “When will it be safe to hug my grandchildren?” Conversely, many younger adults have questions about their own vaccinations, children’s school schedules, job prospects, and long-term impacts of COVID-19 on careers, work practices, and finances.

Fact is, we have been living for almost a year with a “Quarantine State of Mind.” A challenge we all face is gradually easing up on pandemic practices and finding a comfortable space somewhere between our pre-COVID and quarantined lifestyles. In addition, many people will need to rebuild financial lives shattered by job loss, death, medical bills, and other events. 

Below are six thoughts to ponder as we look ahead to the time when COVID-19 is in the rear view mirror:

¨       Emergency Funds Need Replenishing- This will not be easy, especially for people getting back to work after months of reduced income, furloughs, or unemployment. Many have completely drained their savings. That being said, any savings is better than nothing, even if it takes a year or more to get back to a comfortable place. One way to save is to complete the 30-Day $100 Savings Challenge. At the end of each month, you’ll save up $100 and, after a year, you’ll have $1,200 saved. If you can scale your savings up to $300 monthly, you would have $3,600 set aside.

¨       Bottlenecks Will Occur- An article in the Wall Street Journal, “Consumers Open Wallets, and Factories Can’t Keep Up,” noted that many manufacturers went into their typical recession mode playbook and cut payroll costs and production. What they didn’t anticipate was high demand from employed consumers who were unable to spend money on travel and entertainment and wanted to spend it elsewhere. International supply chain issues also caused delays. Bottom line: consumers may continue to experience limited inventory and longer wait times for deliveries.

¨       Financial Numbness is Real- Many Americans have been living in “financial limbo” for a year. Some observers have called this “financial numbness” or “stuck-in-a-rut-ness,” as people stayed in a “holding pattern” and put off decisions like putting their house on the market, funding a retirement savings plan, or making plans to do something in the future. We will all need to start feeling comfortable making plans again and taking action to move forward.

¨       “Baby Step” Planning is Okay- Many people were burned by non-refundable travel expenses and travel insurance policies that did not cover pandemics. Some experienced other plans that “blew up.” It is totally understandable to be wary of making advance plans for work, travel, and events. Personally, I probably will not pay any long-range advance deposits for a while. More likely, I will pay for activities and services closer to when they actually happen.

¨       Time Pressures are Real- All of us will have lost over a year of opportunity when COVID-19 subsides; opportunity to earn income, see friends and family, travel, and more. No one feels this more than older adults, whose greatest (shrinking) resource is time. My neighbors talk, not about “losing two years,” but losing two QUALITY years as they acknowledge their health status may decline. There will be lots of pent-up demand to work on “bucket lists.”

¨       Confusion is Almost Inevitable- We ought to consider now what we will do when family members and friends have different views about how to "re-emerge” after COVID-19. For example, when to travel, get together, go to crowded spaces, and/or hug others. Like different views that people hold now about mask-wearing, post-pandemic practices will likely be confusing, controversial, and/or complicated because people have different levels of "cautiousness." Hopefully, we will get clear guidance from public health officials but it will likely be interpreted in different ways.

Thursday, February 18, 2021

Still More Interesting Insights and Timely Tips


As I noted in two previous posts, I access many webinars (and podcasts) these days to learn new information and connect with others while staying safe at home. I also find it useful to prepare summaries of my key take-aways, both as a reference for myself with future financial education projects and to pass along to Money Talk readers.

Below is an eclectic summary of seven key take-aways that I recently wrote down in my personal learning journal:

¨      Older Adult Spending- Four categories were identified in research: Home Spenders (60% or more of budget on housing), Health Spenders (20% or more on health care), Discretionary Spenders (25% or more on gifts, entertainment, and contributions), and Typical Spenders (everyone else). 

    The percentage of Health Spenders increases with age and couples are more likely to be discretionary spenders than singles. Discretionary spenders also have the highest median incomes and are more likely to delay Social Security benefits. Spending patterns evolve over time and are more diverse than what is typically reported in stories about older adults.

¨      Income Tax Filing Tips- People generally cannot itemize tax deductions anymore unless they have some type of tax planning strategy such as “bunching” deductions or making large charitable gifts. On 2020 tax returns, non-itemizing single filers or married couples filing jointly can take an “above the line” (before adjusted gross income) tax deduction for up to $300 in cash donations to qualified charities. In addition, more Americans may qualify to claim the earned income tax credit (EITC) due to income losses in 2020. As always, unemployment benefits, which many Americans received in 2020, are fully taxable on federal tax returns.

¨      “Settling Up” Recovery Rebates (Stimulus)- To make this calculation, taxpayers need their 1444 notice; i.e., the letter signed by President Trump with the amount of their economic impact payment. Unfortunately, people were not told to save this notice and many probably lost or destroyed it. In this case, review bank statements to look for evidence of a deposit from one or two rounds of stimulus payments. There is no look-up tool. Taxpayers with a child born in 2020 will receive an additional $500 for the child. If the calculated amount for a recovery rebate is less than the stimulus payment(s) previously received, taxpayers get to keep the difference.

¨      Healthy Living Decisions- Studies indicate that about 80% of heart disease, stroke, and diabetes cases and 40% of cancers can be prevented with lifestyle changes. After age 50, almost all of the aging process is a result of personal choices that people make where, before age 50, genetics is a key factor. Routines help make positive changes stick. 

      One of the best things that people can do to increase their well-being is to get outside more. Before COVID-19, people spent 93% of their time indoors: 86% at home and 7% in cars. There is “awe” in nature and a specialty field known as eco-medicine (a.k.a., eco-therapy). Studies have shown that outdoor activities (e.g., walking and gardening) have theraputic effects by reducing anxiety and boosting immunity.

¨      Definitions of Success- Two prominent financial planners, Dave Yeske and Michael Kitces, exchanged thoughts about what constitutes “success” for financial planning practitioners. Their insights can also apply to people from all walks of life. One definition of success is that people say to you, for any number of reasons, “My life is better because you are in it.” Another is when people create some type of legacy (e.g., a business, creative works, family traditions, charitable endowments) that can carry on without them.

¨      Smart Assistant Devices- “Assistants” such as Amazon Alexa, Apple Siri, Google Assistant, Microsoft Cortana, and Samsung Bixby do not understand a word that people say. Rather, words are converted to text and analyzed, using artificial intelligence, which enables them to perform tasks and answer questions. Before buying a virtual assistant, think about what you will use it for.

    Commonly-performed tasks are answering questions, playing music, getting personally tailored recommendations, placing phone calls, telling jokes, turning lights on and off, shopping, playing podcasts, health status monitoring, and setting reminders.

¨      Small Steps Matter- Do what you can do right now to move yourself toward your goals. Actions that you take today with respect to your finances can help you live the lifestyle that you want in the future. Living a lavish lifestyle that you can’t afford will leave you broke. Look for examples of people who made smart financial decisions and learn from their success stories. People want to see people who look like them do great things.

Thursday, February 11, 2021

2021 Tax Season Need to Knows


With the IRS accepting 2020 tax returns as of February 12, now is a good time to gather documents and prepare to file as soon as possible. 

Below are useful insights gleaned from tax publications including the 2020 Individual Investor’s Guide to Personal Tax Planning from the American Association of Individual Investors (AAII):

¨      New Line for Recovery Rebate Credit- Otherwise known as “stimulus” received via the CARES Act, there is a new line on Form 1040 for this. If your 2020 taxable income was less than either your 2018 or 2019 income (whichever tax year was used to calculate your stimulus payout received during 2020), you may receive a larger credit. If the reverse happened, you do not need to repay any of the “excess” amount that you received.


¨      New Line for Charitable Deductions- Also as a result of the CARES Act, the almost 90% of taxpayers who do not itemize deductions because the standard deduction is higher can deduct up to $300 for cash contributions to qualified charities. The $300 limit applies to both singles and married couples filing jointly. Like the Recovery Rebate Credit, there is a new line on Form 1040 for this deduction.


¨      Cryptocurrency Question- The question “At any time during [tax year] did you receive, sell, send, exchange or otherwise any financial interest in any virtual currency?” was moved to the front page of Form 1040, just beneath a taxpayer’s name and address, to make it harder to miss. The IRS is trying to capture income earned from virtual currencies and make it more difficult for tax[payers to claim ignorance about tax reporting rules.


¨      Floor for Medical Expense Deductions- As a result of the SECURE Act, the floor for calculating deductible unreimbursed (by insurance) medical expenses is 7.5% of adjusted gross income (AGI) for 2020 tax returns. For the 2021 tax year, it reverts back to 10% of AGI. Some state income tax systems have a lower AGI limit so tally up your receipts and after-tax payroll deductions for health insurance premiums to see if you qualify.


¨      New State Income Taxes- Tax experts have warned that those who worked remotely or decamped to another state other than their primary work or residence state during the pandemic may owe taxes to that second state. This includes people who relocated to a second home or to live with relatives. The amount owed will depend on tax rules of the states in question and whether there are any reciprocity agreements between them.


¨      Same SALT Cap- Unlike many features of income tax law, there is no inflation indexing for the $10,000 cap on state and local taxes (SALT). This cap began in 2018 and is in effect through 2025 under the Tax Cuts and Jobs Act (TCJA). Also under the TCJA, personal exemptions continue to be eliminated through 2025.


¨      Individual Retirement Account (IRA) Contributions- Tax-deferred retirement savings contributions for tax year 2020 into IRAs can be made until April 15, 2021. Ditto for prior-year simplified employee pension (SEP) contributions for self-employed individuals.


¨      Taxation of Unemployment Benefits- Many more Americans received unemployment benefits this year than previously due to pandemic-related job losses and furloughs. This is a good reminder that the federal government taxes unemployment benefits as if the money is earned income. State taxes vary. Most states fully tax benefits, also, but there are some states with no income tax and a couple that only partially tax benefits.


¨      New Eligibility for Tax Breaks- People who many not ever have been previously income-eligible for certain tax breaks may qualify this year due to pandemic-related income losses. Two examples are the Earned Income Tax Credit (EITC), with 2020 income limits from $21,710 to $56,844, depending on the number of qualifying children claimed, and the Saver’s Credit with AGI limits under $32,500 for singles and $65,000 for joint filers.


¨      Early Filing- Experts advise filing tax returns as quickly as possible. Not only will this get a refund (if any) in your hands faster, but it is a recommended step to protect yourself from refund delays resulting from tax identity theft if a fraudster with stolen data files a false tax return in your name before you file one yourself.

Thursday, February 4, 2021

More Interesting Insights and Timely Tips

 As I noted last week, I attend many webinars (and podcasts) these days, to learn new information and stay connected to others while staying safe at home. I love to learn and online access to free content has provided many useful educational opportunities. During January, I attended over a dozen programs from a variety of sponsors.

Below is an eclectic summary of ten more key take-aways that I wrote down in my personal learning journal:

¨      COVID-19 Silver Lining- The pandemic “leveled the playing field” with respect to working remotely. Companies hired people who would not have applied (or been hired) before because they needed to be physically present in a “brick and mortar” location. This has been great for military spouses and for me, also. I recently started a financial education project for a New Jersey client for delivery on Zoom from Florida.

¨      The Importance of Showing Up- To succeed in life or a career, people need to show up, be brave, and “put yourself out there.” Sometimes, winning occurs just by showing up and trying. I keep this in mind every time I attempt to book an online COVID-19 vaccine appointment. Showing up and accepting a challenge is way better than not making an attempt to succeed and wondering what would have happened if you had tried.

¨      Financial Education is Life-Changing- Concepts taught in personal finance classes (e.g., saving money, inflation, compound interest, and managing risk) can change the trajectory of a student’s life. Students have one big resource that older adults lack: more time for their savings/investments to grow. The best financial education teachers are those who have engaged with their own personal finances (i.e., they “walk their talk”).

¨      “Femenomics” is Real- I heard this term for the first time on a webinar sponsored by the Center for Financial Social Work. It encompasses a myriad of financial challenges that women face, including lower earnings and longer life expectancies, on average, than men and primary care-giving responsibilities. “Equal Pay Day” is how much longer women must work into another year to equal the average white man’s pay on December 31.

¨      Several Future Predictions- U.S. savings rates grew meaningfully in 2020, which has led to forecasts of a spending boom on discretionary items (e.g., travel) by those who were financially unscathed by COVID-19. Much of this “excess savings” is sitting in checking accounts. There are also expectations of future tax policy changes, but taxpayers can only develop financial plans based on what we know about tax laws today.

¨      Charitable Gifting Incentives- Many financial advisors are recommending outright gifts or charitable trusts to clients. Two reasons are 1. the highest U.S. estate tax exemption ever ($11.7 million in 2021) is only slated to last through 2025 under the Tax Cuts and Jobs Act and 2. the lifting of the 60% of adjusted gross income (AGI) cap on charitable contributions by taxpayers who itemize deductions in 2021 for coronavirus relief.

¨      Estate Planning is Critical- With about 450,000 deaths reported due COVID-19, there is urgency to prepare three key legal documents: will, living will, and durable power of attorney. Once documents are prepared, review them every 3-5 years or sooner as a result of life events. Planning for “what ifs” in life is so important because nobody knows what the future holds. Without estate plans, your state has a “one size-fits all” plan.

¨      “Financial Numbness” is Common- In 2020, “everything stopped, but nothing stopped.” Many people moved into “survival mode” and stopped planning ahead due to fear and/or stress. It seemed “safer” to just postpone things. In 2021, we need to move forward. Recommended strategies to address stress include breathing, shortening task lists, adjusting expectations, exercise (especially outdoors), reframing events, and gratitude.

¨       Shame Prevents Positive Action- With the possible exception of unemployment, nothing stops people from making financial progress more than shame. The key to addressing negative financial patterns is awareness. Many counselors have clients create a “money biography,” which is their story of money use from early childhood to current time. Biographies can help people trace their behaviors back to underlying emotions.

¨      College Application Trends- There was a decrease in college applications from first-generation students and a decrease in FAFSA form applications (for student financial aid) in 2020. Missed deadlines were also reported frequently. A national organization (and its state affiliates) called Education Finance Council (EFC) can help students and their families file a FAFSA form. For more information, visit https://www.efc.org/.

Looking Ahead to Your 2024 Tax Return

  With the 2023 tax filing deadline in the rear view mirror, now is a good time to look ahead to 2024 taxes that you will owe in April 2025....