Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about
The crisis brought about by coronavirus should prompt clients to shore up their emergency funds to ensure that they have the cash to cover their living expenses, according to this article in The New York Times. To do this, clients need to check their income, minimize spending and tap possible sources of cash and credit, including their tax refund, according to the article. Those who don't have enough cash reserves are advised to consider reducing their retirement contributions temporarily to beef up their emergency funds.
Clients can use their time in quarantine wisely to put their finances in order, according to this article in Kiplinger. For example, they can streamline their finances by using a target-date fund to auto-pilot their retirement savings, according to the article. Clients can also use their free time to set up an online account with Social Security, as it will reduce the risk of identity fraud and allow them to check their earnings history.
Clients who have lost their jobs as a result of the coronavirus crisis are advised to weigh their options before tapping their 401(k)s and IRAs, according to this Motley Fool article. That's because premature distributions from tax-deferred retirement accounts will trigger a 10% withdrawal penalty plus income taxes, according to the article. A job loss is not one of the exceptions for making penalty-free withdrawals from these accounts.
Boosting retirement savings during a market downturn may sound counterintuitive, but clients may be better off raising their savings rates, especially if they have the financial means, according to this article in Money. “There are a few key levers available to accomplish a retirement goal, but the only one people can affect now is how much they’re saving,” says David Blanchett, an expert at Morningstar. “We don’t control the performance of the markets – but we do control how much we save.”
Five of the top seven performers this year carry AA ratings.
Seniors will be better off postponing their Social Security benefits to minimize the tax bite on their income, writes a CFP in Los Angeles Times. Researchers found that filing Social Security early would mean heftier taxes, especially for middle-income clients with retirement funds, she says. Converting traditional retirement assets into a Roth can be another tax-saving strategy, the CFP adds. "Conversions make the most sense when you expect to be in the same or higher tax bracket in retirement."
