Everyone needs an emergency fund.
Financial experts have stressed the importance of emergency funds for some time. Why? Because a financial emergency is not a matter of “if” but “when.” Having an adequate emergency fund can get you through times when income is low or nonexistent. Those who had money set aside for an emergency are better able to weather this current storm. How much should you save? I recommend three to six months’ worth of living expenses, depending on how many are reliant on your income. A financial emergency will happen, and we must be prepared.
If what we have been going through this year does not make you believe you need an emergency fund, then I don’t know what will.
Q: I am going to defer my 2020 RMD under the CARES Act, will I have to take a double RMD in 2021?
A: No you will not. The CARES Act waives RMD’s for 2020, in 2021 the RMD schedule will resume at the normal rates of withdrawal.
I cannot tell you how many people come into my office, log on to their phone and start pulling up all of their financial data. My first question to them is, “What VPN are you using?” They more times than not look at me puzzled.
A VPN (Virtual Private Network) is a simple piece of software that you can install on almost any device. It will protect your privacy, help you stay safe online, and grant you unrestricted access to the internet.
Most importantly, a VPN will encrypt your data and hide your IP address by creating a private tunnel through the internet.
A VPN allows you to:
Hide your IP address from the websites you visit
Encrypt your browsing traffic
Access geographically-restricted content
Stream or torrent content from other countries
Choose between multiple private server locations
Protect your data on public Wi-Fi networks
There are a number of quality VPN’s you can add to your phone at no cost – my preference is NORD VPN.
How can I help you plan for your future when you are leaving it for the whole world to grab? Protect yourself.
You can have a huge income and all the money in the world, but how you spend it determines how much of it you keep. Over the years, I have discussed spending many times and it is extremely important to think about how you spend every dollar. Some of you may have been laid off, some of you may be working reduced hours, and some of you may not be impacted at all by Covid19. It has always been about how you spend – is something a need or a want? Can payment be deferred? If you have received a stimulus check, here are a few spending tips:
Shore Up Your Emergency Fund. Ideally, you should have at least three to six months’ worth of living expenses in a savings account. If you’re not there yet, your stimulus check is a good start.
Pay Off High-Interest Debt. If you’re carrying credit card debt, you’re probably paying upwards of 15%. You can free up a lot of cash by paying off those cards.
Save For Retirement. If you haven’t funded a Roth or traditional IRA for 2019, there’s still time to make a contribution that can lower your 2019 tax bill.
Please be smart during this trying time and be safe.
I have not written to you in a while because I have a new podcast that I have been promoting. You can find it at https://www.clickorlando.com/podcast. Look for the Hechteffect podcast.
The world has changed since my last blog and we don’t know when things will be back to normal. I do have a few tips for you during this trying time.
Stay in touch with your loved ones through any means possible. You never know how much just checking in on someone can change their day.
Try not to spend beyond your means. Being stuck at home, we are all getting bombarded with online offers to buy various different items. Only spend what you have to – don’t get sucked into spending just because there is 20% off.
Exercise. Staying fit is one of the best ways to fend off Covid19. Make sure you eat a healthy diet as well. The world will return to normal soon.
Know that I am here, and I am thinking of you.
The IRS does not call taxpayers, nor does the Social Security Administration. This time of year is ripe with scam phone calls from both agencies. If the IRS needs to contact you for any reason, it will by way of the regular mail system. The Social Security Administration is big on using the mail system also. If you fall victim to a scam, please use these resources:
Protect yourself from becoming a victim.
First let me say that my heart goes out to all who have suffered from this virus. The world is in a panic right now, but I don’t want you to panic about your retirement savings. Often, when negative global events occur, we panic, it is human nature. When these events occurs there can also be opportunity. If you regularly review your retirement holdings, and are happy with the quality of your funds, now if the time to add to your accounts. I have mentioned many times that we seem to like to buy anything on sale except investments. Buy on the dips, be contrary to the pack, and remember you are investing for the long term.
My splurges are shoes and linens. I tend to buy most of my linens online, but shoes are a different story. When I moved to Florida, I did get rid of about 30 pairs of shoes, then three years later when I moved in with my husband, I dumped about 20 more pairs. Shoes make a girl feel good. My husband said to me once, “Why don’t you buy better quality shoes, then just get them re-soled vs. buying new ones?” He had a point, but only to a point.
Paying more doesn’t necessarily mean buying the most expensive item available. You’ll need to find the sweet spot at the intersection of price and quality. Spring is a great time to look at the shoes you have, determine which can be repaired, and which ones need to be trashed. Then, shop wisely and take advantage of the new fashions.
I am very concerned about cash flow for my clients, especially in retirement. No one wants to have to worry about not being able to do as they wish in retirement. A component of the retirement cash flow plan that a few of my clients don’t really pay attention to is the taxes that will have to be paid.
Here is a comment from one very good saver:
“I knew I was putting money into my retirement accounts at a pretax rate, and thinking, ‘I’ll pay the taxes when I get this out’ – I was never really thinking how much it would be. Now when I’m looking at that whole nest egg, it’s like 28% of it I’m not going to get. That’s a shock when you think of it that way.”
A problem with trying to plan for taxes in retirement is, we know the tax laws now through 2025, depending on the election this November, and they will stay the same, or could change drastically. Taxes are a part of life. We need to plan for paying tax in retirement just as paying any other type of bill.
When I meet with my clients, we review their investments as to quality, mix, and performance. That is not the most important part of what I do for my clients. Cash flow is the most important issue when preparing for, and when you are in retirement. People tend to focus on income vs how that income is spent. Don’t get me wrong, earnings, social security, pensions, and dividends are all important, but not the most important.
What you need in retirement is cash flow. Each month you have expenses, and you need cash coming in to meet those expenses. Depending on how you plan for retirement, that cash flow might come from many different places, and not all of it will fit the technical definition of income.
Suppose you retire at 65, but you make a plan and start Social Security at age 70. What do you do to fill that gap to cover your expenses? How you spend your sources of income will be the biggest determinate as to how comfortable your retirement is. It’s all about the cash flow and the decision you make on how to spend it.