What We're Hearing from Our Clients
- Under the new CARES Act, do I have to take my RMD for 2020?
- How is this downturn going to affect distributions that I need to pay for my living expenses?
- If I can, should I take out less from accounts this year because the market is down or volatile?
- How long do you think this down market will last?
- What, if anything, should I be doing right now regarding my investments?
- I am about to retire / just retired: What should I do?
- Is it a good idea to put everything in my Savings Account, wait for the market to go back up and then reinvest?
- How much should I have in my Savings Account during times like these?
- Is now a good time for a Roth IRA Conversion?
- Are plan participants impacted by COVID-19 able to access their retirement funds?
- Have any loan guidelines been adjusted for 401k plans?
- What is the difference between what is happening now and 2008 crisis?
- What are you doing to look for opportunities in this current environment? Is it any different from what you normally do?
- I am older: How can I make sure I do not outlive my money?
- Should I stay fully invested at this time?
- If I need money, what would you sell?
Under the new CARES Act, do I have to take my RMD for 2020?
“Per the Coronavirus Aid, Relief, and Economic Security Act, Required Minimum Distributions (RMDs) for 2020 have been waived for Traditional IRAs, Inherited IRAs and 401(k)s. This allows clients who do not need the distribution this year to leave these funds in their retirement savings account. Additionally, 2019 IRA Contributions can be made up until July 15, 2020, which aligns with the extended tax filing deadline. You’ll want to speak with your Advisor in more detail about what strategy best suits your financial picture."
How is this downturn going to affect distributions that I need to pay for my living expenses?
“Typically, our portfolio managers maintain enough cash within the investment account to fund distributions for the upcoming several months. As such, any short-term downturn in the market will not affect your scheduled distributions but we encourage you to discuss with your advisor what your future income needs may be so we can adjust your portfolio accordingly to meet those needs."
If I can, should I take out less from accounts this year because the market is down or volatile?
“It is always good to take less out if you can in a down market. However, if you can’t do this because you need the funds to live on and have a strict budget, we will work with you to achieve a realistic expectation of how long your money will last and any changes that you have to make as you go through this process. This is a very unusual time in the market, and in all of our lives, and we will work with you to understand your needs for your portfolio.”
How long do you think this down market will last?
“I do not know; no one knows for sure. What we do know is that markets, in these types of down markets, do ultimately normalize and, when they do, those who stay invested may benefit more than those who do not. Also, history has shown us that markets tend to stabilize and rebound long before the actual economy improves. For example, during the Great Recession in 2008, the market low point was on March 9, 2009 while the economy still contracted for several quarters beyond that date. This is why it is key to remain invested and stay the course when tested to do otherwise.”
What, if anything, should I be doing right now regarding my investments?
“Unless you have a necessary cash flow need that requires you to free up funds at this time, the best thing to do is to stay the course. I understand that being in the ‘throes of the lows’ is the hardest time to place logic over emotions, but it is also the most important time to do so. That being said, staying the course does not necessarily mean that we also should sit idly by and do nothing. Things that can and should be done during this time are as follows:
- Investigate whether rebalancing your investments makes sense at this time. Rebalancing is a process that involves buying and selling certain assets in order to maintain a particular asset allocation. It essentially ensures that your portfolio continues to stay in line with your desired risk tolerance.
- Reevaluate your risk tolerance as an investor. It is easy to feel more risk tolerant when the market is doing well, but the true test comes during a market downturn. It is the perfect time to talk with your advisor about whether your current level of risk matches who you are as an investor and whether it still makes sense for your overall financial picture moving forward. If a change needs to be made, now is the time to develop a game plan so that adjustments can be made once things start to stabilize.”
I am about to retire / just retired: What should I do?
“With markets being down as a result of the Virus, what you don’t want to do is pull out and move funds to cash. After the drop in the market pricing, you may be selling at a 'fire sale’ price. No one is smart enough to know exactly when or what the bottom of the market is, but you don’t want to have all your funds in cash as the market eventually starts to rebound and rise. Typically, when preparing for retirement, an investor should have a blend of funds including some more conservative bond funds to help offset some of the volatility of the stock market. Much of ‘what should I do’ is also influenced by the amount of money and the risk level of each client. A client with $200,000 is most likely going to want to be a little more conservative than a client with $800,000. As you get closer to retirement, you and your advisor should discuss what is appropriate for you.”
Is it a good idea to put everything in my Savings Account, wait for the market to go back up and then reinvest?
“Waiting for the market to go back ‘up’ would likely not be the best option as this remains completely unpredictable. History has shown that ‘buying into panic’ tends to generate better long-term returns than waiting for things to already turn higher. To quote Warren Buffett himself, ‘Be greedy when others are fearful."
How much should I have in my Savings Account during times like these?
“This is really a ‘litmus test’ of personal preference and will vary greatly between individuals/families. It’s certainly a fundamentally sound decision to always have at least three to six months of guaranteed expenses in savings, but the events of the past few weeks could change that outlook. I foresee individuals/families striving to save more like 9-12 months of guaranteed expenses in their ‘rainy day fund’ as a result of current conditions. Your Girard Advisor can guide you more specifically to what makes the most sense for you and your family.”
Is now a good time for a Roth IRA Conversion?
“Now is definitely a good time to do the analysis to see if converting a Traditional IRA into a Roth IRA makes sense. With the stock market down and in a bear market, one of the silver linings is with the value of your IRA being lower than it was at the start of the year the tax consequence of the conversion is also lower. When you convert from a Traditional IRA to a Roth IRA, you pay income tax on the conversion amount during that year and then the future growth of the Roth IRA grows tax-free. In addition, with changes made with the SECURE Act at the end of 2019 which eliminate the Stretch IRA and forces your beneficiaries to take the money from the IRA within 10 years, making these tax-free disbursements instead of taxable disbursements could potentially also help your beneficiaries. There are many things to consider when converting part or all of your IRA into a Roth and we highly recommend you speak to your Wealth Advisor and your Tax Professional to see if it makes sense for your circumstances.”
Are plan participants impacted by COVID-19 able to access their retirement funds?
“Yes, qualified participants may withdraw, penalty-free, up to $100,000 between January 1, 2020 and December 31, 2020. To be eligible to make such a withdrawal, the individual participant, or his or her spouse or dependent, must have been diagnosed with COVID-19, or the individual suffered adverse financial consequences due to COVID-19 (e.g., furlough, reduction in hours, unable to work due to childcare, loss of business, etc.).
Participants have three years from the day after the distribution was received to repay the amount into a qualified retirement plan (or any other plan or IRA that can accept rollovers). The distribution will be taxable if it’s not repaid, but it can be repaid over a three-year period, unless otherwise elected.”
Have any loan guidelines been adjusted for 401k plans?
“Yes. In plans allowing loans, the limit can be increased to the lesser of $100,000 or 100% of the participant’s vested account balance. This only applies to loans made on or before September 23, 2020 (180 days following enactment of CARES) and is only for individuals that meet the same conditions outlined for the withdrawals noted above.
Payments on existing loans due between March 27, 2020 (the enactment of CARES) through December 31, 2020, may be delayed for up to one year for qualifying employees. Interest continues to accrue during the period and the plan can extend the term of the loan for up to one year.”
What is the difference between what is happening now and 2008 crisis?
“The 2008 crisis and ultimate recession was, to a large degree, founded in some very weak spots in the economy. It’s not like that now. We had a very strong economy heading into this crisis. Also, from the financial/banking perspective, it seems we have learned our lessons from the 2008 crisis and our banks are much better capitalized to endure a crisis like this. And not just the banks. Household debt is at a historical low and household savings has increased as well. So, to a large degree, consumers are in a better position than back then. From a stimulus perspective, I think the Federal Government and the Federal Reserve Bank have learned a lot from the 2008 crisis and acted swiftly and with a greater degree of focus toward individuals and targeted industries.”
What are you doing to look for opportunities in this current environment? Is it any different from what you normally do?
“Our approach is very much ‘business as usual,’ albeit with an expedited timeline. We constantly analyze client portfolios to identify opportunistic positions. We also continually review our macroeconomic strategy as it pertains to positioning and risk levels within our portfolios.”
I am older: How can I make sure I do not outlive my money?
“If you have not already, work with your Girard advisor to create a financial plan designed precisely to help answer this question. Our financial planning process takes a holistic look at your financial life, identifying both opportunities to improve your long-term projection and threats which may cause turbulence to your lifestyle. Through open communication and thorough analysis, your Girard advisor will help you chart the best path forward for you and your loved ones.”
Should I stay fully invested at this time?
“Selling equities during a crisis is inevitably locking in losses, something history has shown us is not beneficial for long term investors. It is important to evaluate what you own, the strength of the position to withstand further volatility and make an unemotional decision about the holding moving forward, something the Girard Investment Committee is diligently working on. Those who have more cash than is needed for their reserves, and whom understand that investing now could get worse before it gets better as there is no perfect day to buy, should consider whether this volatility is a potential opportunity to invest.”
If I need money, what would you sell?
“Each client situation is unique. Once an appropriate amount of cash to hold is determined, we will typically look to the fixed income portion of your portfolio to raise the necessary funds. Bonds are appropriate to provide liquidity for clients during times like these. While spending down your bond allocation will mean your portfolio may be invested more heavily in stocks than what we target for you, we will rebalance back to your established target allocation.”