Friday Data – August 28, 2020

Friday Data - August 28, 2020

Friday Data – August 28, 2020.  Today we share the Covid-19 Data Tracker from First Trust Portfolios.  We also take a look at some high frequency data that shows some continued improvements in our economy.  And check out a link to an article from Franklin Templeton about misinformation and bias surrounding the Covid-19 Pandemic.

Covid Data Tracker

Key Highlights

Here are some key observations.

  • Deaths and new cases continue to trend lower. 
  • The “Case Fatality Rate” has continued to show signs of drastic improvement since April.  (This only accounts for fatalities of known positive cases)
  • Nearly 92% of all Covid-19 deaths have occured in people who are 55 or older.
  • 45 out of 50 states (90%) have less than 10% of their hospital beds occupied by Covid-19 patients. Over half have fewer than 5% of their inpatient beds occupied by Covid-19 patients.

Misperception, misinformation and bias

A recent study by Franklin Templeton Investments and Gallup provided some interesting observations.  Americans have a significant misperception of the risks posed by the Coronavirus.

Below is a chart from the article.  Respondents to the study believed the virus poses more danger to certain age groups (blue bars) than it actually does (green bars).  Respondents to the survey believed people 45 and younger accounted for 42% of the Covid-19 deaths.  The actual number is 7.5%.  They also believed people 65 or older accounted for 39% of deaths.  The virus has hit this age group the hardest.  People 65 and older account for 80% of the total deaths.

It is worth a few minutes of your time. (Click on the blue text in the paragraph above for the full article).

Friday Data - August 29

Continuing signs of economic improvement

The high frequency data shows the American Economy continues to improve.

Friday data - august 28
  • Jobless claims continue to fall
  • Retail sales continue to recover.
  • Rail car traffic and box office receipts show signs of improvement.
  • Hotel and restaurant data looks more encouraging.  But it has a long way to go.

This graph from Scott Grannis shows the impact of jobless claims. It looks very much like a “V” shaped recovery.

Friday Data - August 28

Manufacturing and consumer spending also show signs of improvement.  (From Charles Schwab’s Liz Ann Sonders)

 

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Data Update, August 14, 2020 – Corona Virus and The Bear

Data Update, August 14, 2020

Coronavirus Data and the Bear Market

Today is our data update for August 14, 2020.  We share some data about the Coronavirus provided by First Trust Portfolios.  And we also provide an update on the Bear Market.

Covid-19 data update

This data sheet is provided by our friends at First Trust Portfolios.  It shows a variety of key data points about the pandemic in our country.  If you would like to download a pdf file of this, please click on the button.

Here are our key takeaways from this week’s virus data.

  • The trend of new cases flattened in the last week and began to show a slight uptick.
  • Two more vaccines entered phase 3 trials (up from 6 last week), and one more vaccine was granted approval for limited use. 
  • The “deaths per 1 million people” data is new this week.  

An article this week discussed the decreasing number of tests being conducted which will have some impact on the numbers. 

The 2020 bear market update: almost over...

Data Update august 14 2020
Click to enlarge

So close.

For a brief moment, the S&P 500 Index flirted with a new all-time high.  Here are the relevant points in this Bear Market.

  • From February 19 to March 23, the index fell 33.9%. (It was the fastest drop of that magnitude, ever!)
  • Since then, the index has recovered more than 50% of the loss.  
  • At the market’s close on August 13, the market was less than 0.5% away from setting a new high.

We will have more thoughts on this in the coming weeks. 

Have a great weekend!

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Ask a CFP® Pro: Do I Need Medicare Supplement Insurance?

Ask a CFP® Pro: Do I Need Medicare Supplement Insurance?

Today on our show, we offer a simple, low-cost estate planning tip to help you avoid probate.  We talk about the current bear market, and share some expert predictions.  And we answer three questions.  The big one: do I need Medicare supplement insurance?

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Episode Transcript: Do I Need Medicare Supplement Insurance?

Estate Planning Tip: Transfer On Death Provisions

One of the things we’re going to talk about today is a basic estate planning tip. Oftentimes people ask us what happens to their accounts when they die. A lot of times, they’re trying to avoid the probate process. The probate process can be somewhat inefficient. So let’s talk today about it. Let’s talk about what happens when an account owner dies? What happens to their account.

Standard Individual Accounts

If a person has an individual account.  What happens when they die? we have to open an estate account. In order to do that, we will need:

  • A tax ID number for the Estate (normally the attorney applies for it)
  • A copy of the owner’s death certificate,
  • And a court-certified letter of testamentary. Sometime this is called a court appointment, which names the executor of the estate.

When we do that the original account is frozen. We can’t do any transactions in that account, and we can’t send out any money.

Once we get all the paperwork together, the assets transfer into the estate account. 

How long does it take to transfer an estate account to the beneficiaries?

That’s completely up to the executor. We need a letter signed by them to distribute those assets from the estate account. It can be pretty quick. They can also leave it there for an extended period of time. It’s completely up to them and how quickly they want to get that settled.

Some take as few as 30 days. Some take six months or more.

Transfer on Death Provisions

One thing you can do to improve the efficiency of this process is to use a transfer on death registration. What do we need to do to create a TOD account? And, what happens when we have a TOD provision on the account? What happens when the original owner passes away?

The form that the original owner would need to sign is actually called a non-probate TOD agreement. That form names beneficiaries for that individual account. And it specifies how they want the assets in that individual account to be divided.

We need

  • the name of the beneficiary,
  • the social security number and date of birth.
  • We also need the percentage of the assets that will go to each of them.

When the owner passes, the account is frozen. Individual accounts are opened for each beneficiary. We need a copy of the death certificate and a form called a transfer on death affidavit. Each beneficiary signs this form. This allows them to accept the assets from the decedent’s account.

Once we get the forms, the assets can transfer in two to three days.

It’s a lot more efficient than having an estate account. Plus, you don’t have to go through a lot of the probate stuff. It’s not going to completely avoid probate, there still may be some loose ends. But, it’s going to be a whole lot more efficient.

Once those accounts are open, each beneficiary has the option to do whatever they wish. They can liquidate it. They can continue the relationship with our firm. Or they can transfer it to another firm. It’s a much faster and more efficient way to get assets from the original owner to their heirs.

Joint Accounts

Can you add TOD provisions to a joint account?

On a joint account, when the first owner dies all the assets immediately go to the surviving owner. When the second owner dies, you would do it the same as if it was an individual account,

Typically, it goes to the surviving spouse (most of the time). In those cases, the TOD provision on a joint account comes into play if there’s a simultaneous death. Once the account goes to the survivor, they have to do the TOD paperwork all over again.

IRA’s, Retirement Plans, and Insurance Contracts

These provisions don’t apply to IRAs or retirement plans. IRAs and retirement plans have their own beneficiary designations. They are non-probate assets. It also doesn’t apply to insurance contracts like annuities or life insurance. Those also are non-probate assets that have beneficiary designations. It only applies to individual and joint accounts.

Still need a will…

This does not replace the need to have a will or a trust. You should involve your estate planning attorney (if you have one). They may have other ideas that are better suited for you.

This is a simple and easy way for you to do some basic estate planning. And it costs nothing.

Note:

The account owner must sign the TOD application. Powers of attorney cannot sign this form. Even if the power of attorney document says that the agent can name beneficiaries, we require a signature from the account owner.

Let's Talk Stocks...

Medicare Supplement insurance - Bear market

It’s been crazy.

Every time I speak to someone, they say that they can’t believe that the stock market keeps going up like it has. Here’s where we are in the current bear market.

We had a 35% drop in the first quarter. Since then, we’ve seen stock prices increase by about 44%. Year to date, prices are at a breakeven point. We started the year with the S&P 500 at 3,230. On price basis, the S&P 500 is breakeven for the year.

Prices have to go up another 5.5% percent to set a new high. The high point is 3,386. We still have a little bit to go to completely erase the bear.

Given the amount of bad news we’ve had, the increase doesn’t make sense. There is still a lot of potential bad news out there too. It doesn’t seem possible that we’ve erased that big of a drop this fast.

The virus isn’t going away either. Many states are trying to avoid another shutdown. I know we have mask requirements now in Ohio and West Virginia. I saw where Kentucky closed bars and limited restaurant capacity to 25%. States are trying to avoid shutting down, but there are some potential ugly things out there. You can make the case for why this market is going to correct again, but you can also find some rays of sunshine.

Expert Predictions

Medicare Supplement Insurance

It’s interesting to see what some of the experts think. Bloomberg released a recent survey of their equity market experts. They asked 17 analysts for their forecast for the year end value of the S&P 500. The average of the 17 predictions for the year end value is 3100. That’s about a 4% drop from current levels. On average, they think that stocks are a bit ahead of themselves and we’re due for a reset.

Five of these people have predicted that the S&P index will fall below 3000, which would be a 7%% drop from current levels. The lowest prediction is 2,750. That is a significant drop. The highest prediction was 3,500, which would be a new all-time high. That would be about a 7% increase from where we are right now.

How good are these predictions? We’ve talked about this in the past. Crystal balls aren’t always in working order. We really don’t know how accurate these forecasts will be.

If someone were to press me on it, I predict 3,150. I also believe we’ve gone a little bit too far, and we’ll see a small pullback.

Insurance Medicare Supplement
Medicare Supplement Insurance Do I Need

Question 1: Do I Need to Keep My Medicare Supplement Insurance?

If a person has Medicare A and B, plus prescription insurance, what is the benefit of Medicare supplementinsurance? Ours runs around $500 a month and there is no way we come close to that in paid claim benefits. I’m not a healthcare guru. But it seems to me there could be better ways to invest my $6,000 a year.

What does Medicare Cover?

To answer this question, we need to dig into what Medicare covers. Traditional Medicare has two parts. Part A is hospitalization. This covers hospital stays, skilled nursing home visits and hospice care.

Part B covers medical expenses. This includes doctor visits, surgeries and procedures. It also covers preventative care, durable medical equipment, clinical trials, and ambulance services.

Part A

Medicare doesn’t pay 100% of your expenses. Part A, has a $1,408 deductible for your first 60 days in a hospital. That is per benefit period.

A new benefit period starts if you haven’t been in the hospital for 60 days. Here’s an example. If you went into the hospital today, and you were there five days, you’d pay $1408. If you go back to the hospital later this year, say November. You would start a new benefit period. That means you have to pay another $1,408 deductible.

Days 61 through 90 cost you $352 per day, this is your out of pocket cost. And if you’re in a hospital more than 90 days, days 91 plus can cost you up to $704 per day. That’s your risk on the hospitalization side.

Part B

Part B is your medical expenses and is your doctor visits. So you have a $198 deductible. And then Medicare pays 80% of the Medicare approved amount. You pay the other 20% and any of the excess non-approved amounts.

Let’s say you have a joint replacement, and your total bill is $50,000. You pay the first $200. And then you pay 20% of the remaining bill. That’s $10,000! That’s your risk exposure in this case.

What do Medicare Supplements cover?

Medicare supplement insurance policies cover these out of pocket expenses. Most of them cover the Part A deductible. And they cover the Part A coinsurance—which are the costs beyond day 60. They also pay the Part B coinsurance.

Some Medicare supplement insurance policies will pay the Part B deductible. In our experience, you usually pay more in premium than the Part B deductible. We usually don’t recommend policies that cover the Part B deductible. Many will also cover the Part B excess charges. If a doctor bills $1,000 for a procedure and Medicare only approves $800, many of those plans will cover that extra $200. They cover some other things as well.

Is it worth it?

Is $6,000 per year worth it? When you’re healthy, and you don’t have claims, it doesn’t seem like it. But remember, you may not be in good health in the future, and you could have a claim at any time. Your risk exposure to not have that coverage is significant.

In many respects, this is like your homeowner’s policy or your car insurance. You pay premiums for years. If you never have a claim, you start to wonder, “Why do I do this?” But one car accident and you have a $3,500 repair. Suddenly, you’re glad you have that car insurance.

Medicare Supplement Insurance is the same thing. You could use that $6,000 a year to make money. But what would the net cost be if something major happened? And as you get older, you have an increased possibility of that happening.

You have to make that decision on your own. But in many respects, we find that the Medicare Supplement insurance premiums can be worth it.

Insurance Medicare Supplement
Supplement Medicare

Question 2: What is Your Opinion of Gold and Silver as an Investment Option?

With all the advertising promoting gold and silver as a safer investment. What is your opinion of that, and what is your advice to someone weighing that as an option?

Safer? Really?

Safer is an interesting way to put that. I’m not sure I would call gold and silver “safer.”

Gold and silver are fear assets. When things around us are going poorly, precious metals tend to do a lot better.

Right now, we are in a pandemic. We have a situation where the government is spending a lot of money to help people. They’re printing the money. And there’s some questions about whether they can sustain this long-term.

When a country does this, they’re trying to create some type of inflation. If we have hyperinflation—like Venezuela, they’re the most recent high profile case. In Venezuela, inflation has been some 3,000%. They’ve printed all this money. A loaf of bread costs $200. The price of gold also goes much higher.

When you look at what’s happening in America right now, some believe gold might be a really good asset. We keep pumping out trillions of dollars of stimulus money. The Fed continues to buy assets, and the money’s coming out of thin air. There’s a good reason to think gold could go much higher.

Consider all the alternatives

You have to consider a couple of other things as well. What other investments can you use? Stocks are one choice. we’re big believers in stocks. Equities have a lot of volatility. As we’ve talked about, we could see the stock market fall more in the coming months. Gold and silver may do a better job of holding their value over the next few months.

Bonds don’t look attractive right now. Yields are extremely low. And the only way bonds can generate any significant gains is if yields go even lower. Gold and silver may do a better job of holding their value than bonds right now.

Current prices matter

The other thing you need to consider are current prices. Gold recently set all-time highs. So you’re buying an asset at its highest price—ever. You are buying now and hoping it goes higher. Much of the gain from Gold has already happened.

If the US economy continues to rebound, gold prices could fall. Silver isn’t near an all time high. It has some room to run, but there are similar concerns.

Volatility in Gold and Silver

Medicare Supplement Insurance Gold Silver Stocks

Remember, gold and silver have a lot of volatility. All three investments have times when they perform extremely well. And, all three have times when they deliver gut wrenching drops.

Gold and silver can do well when stocks don’t. But the opposite can also be true. You have to be careful when you’re buying any type of asset when prices are at all-time highs. A lot of the gains have already happened.

There was an interesting stat from that chart. From 2007 through June of this year, stocks and gold have a very similar average annual return. I would have thought that stocks would have performed better. But the recent events had a significant impact on these numbers.

Question 3: Is the Media Moving the Market?

Is the market today being influenced by the media, especially the liberal left agenda?

This is an interesting question. When you’re in an election year, politics tends to dominate the headlines.

Both sides are trying to make themselves look good, and make the other side look bad. So both sides are pushing their agenda. It depends on which channel you turn to on a given night. as to which one you’ll hear.

You can argue the market has improved because the conservative agenda has shined. You can also make a case that the market has improved because of the liberal agenda. I’m not sure either argument is valid.

It depends on your perspective. You can create a reason for the moves in your own mind. You might believe the stock market is pricing in a Joe Biden victory in November. You can argue the stock market has benefited more from policies put forth by republicans.

When stocks go up, there are more buyers than sellers. When stocks go down, there are more sellers than buyers.

A lot of what we’ve seen to this point from the government has had a lot of bipartisan support. A lot of it has been driven by actions of the Federal Reserve—who is supposed to be politically neutral. You can’t really say that one party’s agenda is responsible for what is happening in the market.

Constant themes in the stock market…

As we get closer to the election, politics will play a bigger role in the day to day volatility. But you have to remember something with stocks: companies still find ways to make money. When we’re investing in stocks, we are buying those future profits. It doesn’t matter who’s in charge, Businesses will find a way to make money and grow their earnings.

The other thing to remember is volatility.  It’s always part of the stock market, no matter who’s in charge. We will always see stock prices have wild swings up and down.

In the big picture, the reasons why the market does what it does really don’t matter that much. Over time, stocks go up. It’s what they do. Politics don’t matter as much as some people want to believe.

What’s moving the market?

So my answer to the question. Nobody’s agenda is affecting the stock market. Stocks have gone up for these three reasons:

  • Anticipation of economic recovery
  • Optimism for a vaccine coming to market quickly
  • Earnings news hasn’t been as bad as anticipated

That’s why the stock market has gone up. In my opinion, it has nothing to do with right vs left or conservative vs liberal.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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3 Questions To Help Evaluate Your Cash Flow

3 Questions to Help You Evaluate Your Cash Flow

The COVID-19 Pandemic forced a lot of major changes to our lives. IT has also created a unique opportunity to gauge how we spend money. Today, we’ll pose three questions to help you evaluate your cash flow.

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Questions To help Evaluate Your Cash Flow
3 Questions to Evaluate Your Cash Flow

A week ago, we talked about the importance of building your financial safety net. One of the first steps was to take a hard look at your spending. Today, we have three questions to help you evaluate your cash flow.

Question 1

Evaluate Your Cash flow

The things you really enjoyed—the activities that added value to your life, you’ll find a way to do them again. Eliminating the ones you don’t miss and the costs associated with them, can help you get your budget back on track.

Question 2

Questions to Help Evaluate Cash Flow

Was it that fancy cup of coffee, or breakfast sandwich on the way to work? Could it be something bigger? If you haven’t missed it when you were forced to stop buying it, you don’t have to start just because you can. You may find that many of those little things can add up to a lot of money each month.

Question 3

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When things get tight, we start to look at the details. It’s easy to identify the line-items on your bank statement that cause you stress. It could be the amount you spend eating out. Or, that pesky gym membership you don’t need or use. And then there are all those subscriptions. It could be something even bigger like a car payment.

Weigh the stress of those expenses now that times are tight to see the true value they provide to your life. If those two things are “out of balance,” take some time to clean them up.

Remember, there are no wrong answers to those three questions.

This pandemic forced us to alter our spending habits. In the process, it revealed what was essential, important, and truly valuable to our lives. And that can help us make better choices about money going forward. It can help us build our financial safety net and save for our future.

evaluate your cash flow questions
evaluate your cash flow questions
Questions to Evaluate Your Cash Flow

 

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Creating Your Financial Safety Net

Creating Your Financial Safety Net

As America begins to reopen, we can set our sights on what we need to do to get our financial situation back in order. What should be at the top of your list? In my mind, creating your financial safety net should be a high priority.

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Create Your Financial Safety Net

Some Disturbing Numbers

America is starting to reopen. Hopefully that means we will all be able to get back to work soon and begin your own financial recovery. But as you begin to focus on what you need to do, what should be your top priority?

The best place to start: your financial safety net. By this we mean focus on building a cash reserve and eliminating debt.

When we look at the some of the numbers we see some very disturbing statistics.

Lack of Savings…

According to gobankingrates.com:

  • Over 2/3 of Americans don’t have $1,000 in a savings account.
  • 45% have no savings at all.

Massive Consumer Debt…

According to NerdWallet, Americans owe more than $14 trillion
  • $466 billion in credit card debt
  • $9.5 trillion in mortgage debt
  • $1.3 trillion in car loans
  • $1.5 trillion in student loans

The “Average American” has no safety net!

Financial Safety Net

A Major Financial Crisis

When 30 million people lose their jobs, and millions more see their pay reduced, it is going to cause real problems very quickly.  This time, the government stepped in to provide some relief.  Many banks and lenders have been very understanding too.  But the next time you face a financial crisis, you may not be able to depend on the same measures.

Having cash allows us to keep the lights on, food on the table, and a roof over our heads.

Eliminating debt means we have less money going out each month. And this means the money we do have can go for what we truly need.

How Do You Do This?

We need to focus on how to avoid these problems if or when there is a “next time.”

How do you do this?  It’s simple, but not necessarily easy.

1. Take a hard look at how you spend money.

The past few months should have revealed what expenses are truly essential.  You will need to make some hard choices and big changes in the expenditures that aren’t.

2. Make saving a higher priority.

As things return to normal, make it a point to save something from each paycheck.  Aim to have at least $1,000 in a savings account to start.

3. Create a plan to eliminate your debt.

Focus on your car loans, your credit cards, and student loans.  One of the best ways to do this is to use the debt snowball created by radio personality, Dave Ramsey.

Your Financial Safety Net

Be ready for the "next time"

We don’t know when the next financial crisis will happen, and it may only be YOUR financial crisis.  Your financial safety net will mean a whole lot less stress and a lot less pain.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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4 Ways The Pandemic Could Impact Social Security

4 Ways the Pandemic Could Impact Social Security

Social Security is the cornerstone of retirement income for many Americans.  Have you wondered if the Coronavirus outbreak will impact your benefits? Here are four ways the pandemic could impact Social Security.

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The Covid-19 Pandemic and the Economy

The Covid-19 virus has turned the world and the economy on its head. The financial impacts are being felt far and wide. We have record unemployment claims, with nearly 22 million people out of work–so far. And Pew Research estimates 27% of American workers have seen their pay reduced.  Government response has also been extreme.  All of that will impact the future.

Most of the media focus has been on how this outbreak has impacted current workers. But it can also affect retirees. Here are four ways the pandemic could impact your Social Security benefits.

pandemic social security impact

Social Security does provide an inflation-adjusted income stream. But over the past several years those average increases have not been all that great. In some years, it hasn’t been enough to cover the increase in Medicare premiums. 

According to the Federal Reserve Bank of Cleveland, the current 10-year inflation expectation is less than 1.2% per year. If those projections hold, it means small benefit increases. In some years, it could mean your net check decreases due to rising Medicare costs.

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Pandemic Impacts Social Security

Depending on how long the economic shutdown lasts, many older workers could be forced to retire earlier than they expected. For many, this forces them to start Social Security earlier than their normal retirement age. And those discounts could be close to 30%.  

Social Security Impact pandemic

Social Security uses Average Indexed Wages to compute your Social Security benefits. The economic downturn means total wages earned in 2020 will be less. They could be a lot less.

This could impact how they compute your Social Security benefits. The end-result could be a smaller monthly payment. This will most likely impact those who are close to age 60.

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Pandemic Impacts Social Security

Right now, fewer payroll taxes are being collected. This places an extra strain on an already stressed system.

Prior to the pandemic, Social Security looked to be solvent until 2034. This means they had enough to pay the promised benefits. But the reduced tax collections could mean the problems could happen a year sooner.

Unless there are major changes, when Social Security reaches this point, benefits will have to be reduced.

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Far Reaching Impact

The coronavirus pandemic has affected more than our health. It has had a significant impact on many areas of our economy. And this includes your Social Security benefits.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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What the Heck is a V Shaped Recovery?

What the Heck is a V-Shaped Recovery?

With many states creating plans to reopen the economy, we keep hearing about the recovery. Experts continue to weigh in on what it may look like. But it leaves people wondering, “What the heck is a V-shaped recovery?” 

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If you hadn’t noticed, the American economy has come crashing down. Some people are estimating this will be one of the worst quarters since the Great Depression.

Now, the investment experts and economists are starting to focus on the recovery. And when they get on TV, you start to hear them say things like a V-shaped, or U- shaped recovery. I’ve even heard some talk about a “W” shape or an “L.”

What the Heck is a V-Shaped Recovery?

If you visualize the letter “V”, you see a steep decrease that comes to a point, followed by a steep increase. Think of this as a graph representing important economic data, like GDP, sales, or corporate profits. We’ve seen a rapid decrease in those data points.

V shaped recovery

Many hope that these numbers recover and improve just as quickly as they fell. And we’ll look back at those key statistics and see a “V” shape. This is the most optimistic scenario.

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The U-Shaped Recovery

A U-shaped recovery would see a sharp decrease followed by a gradual bottom. On the other side, the recovery would start slowly and accelerate as time moves on.

Recovery V Shaped

This would make the graph of those data points look more like a “U”. Not as good as a whole, but still not awful either.

A W-Shaped Recovery

V Recovery shape

You have some people worried about a “W” shape. And this wouldn’t be ideal. This would happen in this scenario. We reopen the economy, and things begin to recover quickly. As a result, we see the virus infections spike, which leads to another shutdown. And then the economy would restart at some point in the future.

This would not be ideal, but there is a risk of this happening.

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The L-Shaped Recovery

V shaped recovery

Perhaps the worst possible outcome is an L-shaped recovery. We’ve already seen the rapid decline. But in this scenario, the economic recovery would be long and very slow. A recovery like this could take years to return to where we were before this all started.

What Do I See?

I believe a U-shaped recovery is the most likely scenario at this point. The elected officials are going to reopen the economy at a very measured pace. People are going to be hesitant to spend, and it will take a while for demand to recover.

As much as I would like to see the V-shaped recovery, I don’t see it happening at this point. I am hopeful that we won’t experience a W-shaped curve. In that scenario, the governors would be a lot slower to reopen the economy a second time. And the damage from that would be even worse.

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors. 

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Should I Take Money From My 401k Plan

Should I Take Money From My 401k?

“Should I take money from my 401k to help me get through these tough times?” That’s a question we received from a listener.  The CARES Act made some changes to these distributions.  But there are still some things you should consider. Let’s dig into the answer. (Read more below)

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Should I Take Money From My 401k?

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It’s a tough time right now. We’re all trying to stay healthy. That has led to some very extreme measures. And those measures have created some financial hardships for people.

Mark sent us a question. He asked, “should I take money from my 401k to help me get through these tough times?”

How the CARES Act changed 401k distributions

Recently the federal government passed the CARES Act. It is a $2 trillion stimulus designed to help Americans weather this storm created by the Covid-019 virus.

One of the provisions of this act was to provide some tax relief for distributions from 401k plans and other retirement accounts like IRA’s.

Should I Take Money from my 401k

Normally, if you are under age 59 1/2 there is a 10% penalty for early distributions. The CARES Act now waives this penalty for those early withdrawals up to $100,000.

The act also allows you to spread the taxes from any of those distributions over 3 years.

Lastly, you can return those distributions to your IRA or 401k inside the three-year period as well.

Check Your With Your Employer!

Not every 401k plan allows for in-service distributions. Please check with your employer.

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But, should you take money from your 401k?

Now, this doesn’t answer Mark’s question. It shows that it is an option. Should you tap into your 401k (or IRA) to help you through these tough times?

Here are some things to consider?

Should I take money from my 401k

Your distribution is taxable…

The distributions are still taxable. Even though you can spread the tax bill over three years, and there is no penalty, there are still taxes due. Think of it this way, for every dollar you take out, at best you’ll only keep 85 cents.

You’re selling at lower prices…

The stock market is down significantly. Selling now, means you’re going to lock in those losses.

There is a future cost…

You worked hard to save it. Taking those funds from your account not only has a current cost, it has a potential future cost as well. You’ll miss out on the future growth. Over time that could be significant.

A last resort…

Withdrawing from retirement accounts should be a last resort. Unfortunately, a lot of people could reach those extreme situations. The government has at least provided a little relief if it gets that far.

Make sure you dig into your numbers before you make these tough decisions. If you need some guidance, talk to a financial planner.

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3 Things You Should Know About Bear Markets

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In this free guide, we’ll share 3 things you need to know about bear markets, and 4 things you can do right now to survive it.

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    

Our Most Recent Videos And Posts