There has been a lot of discussion over the past several years regarding cryptocurrency. If you feel like the whole idea of cryptocurrency is hard to understand, you are not alone.
The year 2020 has been a trying, if not scary and frustrating, in many ways. From millions of jobs lost, political division, civil unrest, social distancing, and wild stock market swings, to remote working and schooling. However, most saddening is the loss of loved ones due to COVID-19. These events have reshaped our world and have likely rewritten your plans for retirement.
By way of review, COVID-19 came to the fore in late 2019 resulting in the following events:
New Year’s Eve 2019
- Concentrated cases of severe pneumonia broke out in Wuhan, China
- The U.S. unemployment rate was 3.5%, a 50-year low1
- The novel Corona Virus Disease-2019 (COVID-19) was named and began to spread rapidly
- COVID-19 was declared a pandemic by the World Health Organization2
- The U.S. government took decisive action with President Trump signing the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); a $2.28 trillion dollar program
- The Dow Jones shed 11,000 points (-37%) in 5 weeks with all other markets following suit while economies around the world shutdown to combat the spread. The Federal Reserve dropped the federal funds target rate to zero percent
- The U.S. government aggressively began funding the programs of the CARES Act
- The U.S. unemployment rate rose to 14.7%
- From March to June, nearly 49 million new unemployment claims were filed3
- The Federal Reserve’s balance sheet swelled from $3.78 trillion to an unfathomable $7.2 trillion4
- The Dow Jones recovered all of its losses and was back to even for the year, just six months after bottoming in March
- Presidential elections indicated Joe Biden as the winner. A senate runoff election is set for January, 2021 in Georgia, which will determine the senate majority and political balance of power
- Unemployment has trended down to 6.7%
- COVID-19 vaccines obtained approval and demonstrated efficacy rates of over 90%
- The Dow Jones hit record highs and breached 30,000 for the first time ever
- 30-year mortgage rates hit an all-time low of 2.5%
- Inoculation for COVID-19 began in England, followed by the United States just days later
- Total global COVID-19 cases approach 72.4 million; the US accounting for 16.3 million5
- Total lives lost due to COVID-19 has reached 300,000 in the United States, and claimed the lives of over 1.6 million people worldwide
An intra-year stock market decline of -37% followed by the markets soaring to new all-time highs reminds us that market timing is nearly impossible. With markets at an all-time high, investors should revisit their long term/strategic goals and consider rebalancing their portfolios accordingly. Maintaining a diversified portfolio and a steady hand is critical for long-term success.
With extremely low interest rates, be careful not to invest more than you need in short term investments. Just a small amount of inflation will erode purchasing power. Having the right asset mix to plan for short-term, intermediate-term and long-term income needs is crucial. One advantage exacerbated by the pandemic is the opportunity to refinance debt at a lower rate.
Regardless of how the balance of power is confirmed, personal tax rates (income and estate taxes) are scheduled to increase in 2026. Further, changes in the income and estate tax law could occur more quickly should the Democrats win both seats in Georgia.
The SECURE Act of 2019 eliminated the “stretch” IRA. Now, only “Eligible Designated Beneficiaries” are given the option to stretch retirement plan distributions over their lifetimes. Eligible Designated Beneficiaries include spouses, minor children, disabled or chronically ill beneficiaries, and beneficiaries who are less than 10 years younger than the account holder. All other beneficiaries must distribute the account by December 31st of the 10th year, if inherited in 2020 or later.
Review your beneficiary designations to make sure your wealth will transfer in the most tax-efficient manner. A trust as a conduit beneficiary (historically a very popular estate planning tool) may no longer be the best option for a variety of reasons. Look to design a forward-looking, tax-efficient drawdown strategy for all classes of beneficiaries.
Such a plan could include accelerating distributions from tax-deferred accounts in down markets and in years with low income or high deductions, then reinvesting the proceeds in non-IRA accounts for preferred capital gains rates. Non-IRA accounts will also enjoy a reset of cost basis at death (under current law) and escape calculations for required minimum IRA distributions. Consider converting traditional IRA funds to Roth IRA money for tax-free growth and distributions.
The SECURE Act delayed the age for required minimum IRA distributions to age 72 for those who attain age 70½ in 2020 or later. Qualified distributions to charities remain untaxable beginning at age 70½. Although income requirements and limitations still apply, the age limit for IRA contributions has been repealed. Note that consequences exist for making a traditional IRA contribution and a qualified charitable IRA distribution in the same tax year.
With all of the changes and economic impacts, now is the time to engage your credentialed financial planning team to reevaluate and realign your investment, estate, and tax plans that 2020 has disrupted.
- U.S. Bureau of Labor Statistics. (2020, December 14). Labor Force Statistics from the Current Population Survey. Retrieved from data.bls.gov: data.bls.gov/timeseries/LNS14000000
- World Health Organization. (2020). Naming the coronavirus disease (COVID-19) and the virus that causes it. Retrieved from who.int: www.who.int/emergencies/diseases/novel-coronavirus-2019/technical-guidance/naming-the-coronavirus-disease-(covid-2019)-and-the-virus-that-causes-it#:~:text=The%20
- Fronstin, P., & Woodbury, S. A. (2020, October 7). How Many Americans Have Lost Jobs with Employer Health Coverage During the Pandemic? Retrieved from CommonWealthFund.org: www.commonwealthfund.org/publications/issue-briefs/2020/oct/how-many-lost-jobs-employer-coverage-pandemic
- Federal Reserve. (2020, December 14). Credit and Liquidity Programs and the Balance Sheet. Retrieved from FederalReserve.gov: www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
- Johns Hopkins. (2020, December 14). Coronavirus Resource Center. Retrieved from COVID-19 Dashboard by the CSSE: coronavirus.jhu.edu/map.html