A lot has changed in the social and economic landscape in the last few weeks.
The far-reaching effects of the spread of the coronavirus have spared no one—we have all been affected one way or the other.
It is truly one of those times when God "makes his sun rise on the evil and on the good, and sends rain on the just and on the unjust" (Matt. 5:45).
During this rapidly changing economic environment, many questions have arisen for those who want to steward their resources wisely. Some may need to answer different questions than others, depending on their age, financial situation, and plans.
In this article, I will try to provide some answers to questions that may be "top-of-mind" for most people. But remember, I can't answer for you—you will have to decide what is best in your situation.
What I can do if offer guidance and point you to biblical principals that help you make the best decisions for you and your family.
I have broken the Q&As into two groups: those pertaining to the recent stimulus package enacted by congress and those that relate to the current economic situation.
The Families First Corona Virus Response Act
By now, you are probably aware of the "Families First Corona Virus Response Act" that Congress recently enacted. The financial stimulus and unemployment benefits aspects are, understandably, getting the most attention. Here are the biggies:
- Depending on your adjusted gross income (based on your 2018 or 2019 tax return), you will receive $1,200 per adult ($2,400 for a couple). There is an additional $500 for each qualifying child under the age of 17.
- The bill also increased unemployment payments by $600 per week for four months. Plus, self-employed and "gig economy" workers are eligible.
Those are all very, very helpful provisions. But you may not realize that it contained some additional provisions directly related to retirement stewardship:
- It lets people make early withdrawals from retirement accounts without paying the typical 10% penalty.
- It allows people to take bigger loans from those accounts, up to $100,000.
- It provides an additional year (on top of what a particular plan offers) to repay those loans.
- It lets IRA account holders over age 72 and a half keep more money in their accounts by not requiring them to take a distribution this year.
Although some have expressed concern about the cost of this package and its impact on the federal debt, as Christians, we can view this as an expression of God's common grace. "The Lord is good to all; he has compassion on all he has made" (Psalm 145:9).
These provisions present some questions for those saving for, or already living in, retirement. So let's tackle those first:
What should I do with my "financial stimulus check?"
For most people, the answer is clear: you will need to use it to live on.
If you've lost your job or have been furloughed, or you own a small business that has come to a standstill, you may need this money to pay the bills—that's what the government intended it for, and that's the best use of the money right now.
"But if anyone does not provide for his relatives, and especially for members of his household, he has denied the faith and is worse than an unbeliever" (1 Tim. 5:8).
But what if that's not the case? Since you don't know what the future might hold, you may want to add it to your emergency fund. Another option would be to save it in your IRA (you can buy certain investments "on-sale" right now).
Another good use for the money would be to give it way. You could help a family in need. Or you could contribute it to your church benevolence fund or a community agency helping the homeless or needy during this difficult time.
Should I take penalty-free early withdrawals from my retirement accounts?
Congress has allowed this before (back in 2009 during the last financial crisis). In my opinion, this should be done only as a last resort.
By withdrawing money from your retirement savings, you may have to take a loss on the sale of depreciated assets permanently, plus you will forfeit the future growth of those assets.
If you need money from your retirement accounts to survive, borrowing from them may be a better option.
Should I borrow from my retirement accounts?
Once again, only as a last resort. But I do think a loan would be preferred over a withdrawal because you will eventually replace the money you take out.
You may lose some growth in the meanwhile, but it will be back in your account to grow over time.
"Wealth gained hastily will dwindle, but whoever gathers little by little will increase it" (Prov. 13:11).
Should I suspend my RMDs this year?
This question only applies if you are currently taking Required Minimum Distributions (RMDs) from your retirement accounts.
Many retirees need income from their savings to pay their bills, so for them, this is not an option. However, if you can find other sources of income and leave the money in your retirement accounts (invested or adding to a cash reserve), I think it would make sense to suspend RMDs for now.
One of the unfortunate fallouts of the coronavirus has been a stock market crash and ongoing market volatility. If you have any stocks or stock funds in your portfolio, you have seen losses ranging from 20 to 30 percent.
These declines have caused a lot of people to have questions about their investments, especially their allocation to risk-based investments like stocks.
Should I stop investing in the stock market?
You may be regularly contributing to an employer retirement plan or an IRA. If so, any contributions you invest in stocks could end up being the best purchases you ever make— you are buying at a deep discount!
It can be hard to buy additional shares in a stock fund only to see it dip 4% the next day. But this isn't about short-term volatility, its about long-term growth. Your future returns could be outstanding since even those who are nearing retirement can let them grow for the next two or three decades.
Should I sell all my stock investments?
This seems to be the "big" question that everyone wants to answer. It's called "panic selling."
"Fear not, for I am with you; be not dismayed, for I am your God; I will strengthen you, I will help you, I will uphold you with my righteous right hand" (Is. 41:10).
If you didn't sell the day before the crash or the first day after, you probably shouldn't sell now. (I'm not suggesting you should have sold then. If you did, you would have booked a minimal loss. If you do so now, you will take a much larger permanent loss.)
If you get out of the market entirely, you will miss any opportunity for a rebound. Although we will likely see volatility for the rest of this year, there is some expectation that the economy (and stocks) will come back later in the year or sometime in 2021.
On the other hand, if you genuinely think we are headed toward a permanent, worldwide economic collapse, you may want to. But if that turns out to be the case, we will all have bigger problems than the stock market.
Should I stop contributing to my retirement accounts?
You may be forced to cut back or stop saving for retirement altogether during this difficult time. There is certainly nothing wrong with that if you have no other options. Keeping your family finances afloat is much more important than anything else.
Should I abandon my "buy and hold" investing strategy?
Lots of investors use a "buy and hold" investment strategy. They don't buy and sell to try to time the market—they invest for the long term.
During the bull market of the last ten years, it has been easy to be a "buy and hold" investor. There were a few bumps in the road, but nothing like what we see now.
The temptation during times of extreme volatility is to think, "buy and hold is a mistake; I need to start timing the market." That could be a big mistake (Prov. 13:11).
If you are a buy and hold investor, remember that market volatility (and occasional crashes) come with the territory. And, despite wars, recession, volatile interest rates, inflation and deflation, and a host of other things outside our control, the stock market has returned almost 10% a year for the last 90 years.
If you have decided that you don't have the temperament for buy and hold, then you may want to rethink your strategy. But if you thought it was the right thing when the markets were humming, what has changed?
Buy and hold works only if you buy and hold in both good times and bad.
Should I buy an annuity?
I have written before that I think certain kinds of annuity have a place in many people's retirement plans. That said, I don't think you should purchase any type of financial product based on emotion in the heat of the moment.
You may decide that insuring some of your retirement income by purchasing an immediate income annuity makes sense for you. If so, do your homework and decide after the dust settles a little.
"Let the wise hear and increase in learning and the one who understands obtain guidance" (Prov. 1:5).
Another good reason to wait is that interest rates are once again at all-time lows, and that affects the payouts for all types of annuities. Rates will likely be higher in the future, which will make for larger payouts.
Should I invest in gold or other precious metals?
Gold and other precious metals (such as silver) are sometimes viewed as a "safe harbor" during times of economic stress. It's not surprising that people would be interested in gold during times like this.
You might argue that face masks are more valuable than gold right now, but that's probably not the best way to look at it. Although it is unlikely that we will ever be using gold to buy food and water, it can provide what financial professionals call an investment "hedge."
This simply means that owning some gold can diversify your portfolio. Typically, when the stock market goes down, gold goes up. Gold can also be a hedge during inflationary times.
Therefore, gold may be a good investment during times of extreme market volubility, especially if you need to sell assets to generate income. If it does go up, you can sell gold instead of depreciated stock investments.
Something to keep in mind is that, unlike most stocks and bonds, gold pays no income. It is a pure diversification play.
Should I do a Roth conversion?
This question has an indirect connection to the current pandemic. It has mostly to do with the current low tax rates, which, given the current level of federal spending, can only go higher in the future.
Another factor to consider is that, with lower account balances, converting to a Roth may cost you less in taxes. Also, remember that Roth account holders are not required to take RMDs (since they are not taxable).
You may want to consider a Roth conversion if you believe that you will be in a significantly higher tax bracket in retirement and if you can pay the current taxes from non-retirement savings.
Should I refinance my mortgage?
Given that we are hitting all-time low-interest rates again, this would be an excellent time to refinance your mortgage.
If you do, try to get a 15 or 20-year term if you can afford the monthly payments. And make sure you are going to save enough and live in the house long enough to breakeven on the up-front costs to set up the new mortgage.
If you need a large cash lump sum, rather than withdrawing it from your retirement account, you may want to consider a Home Equity Line of Credit (HELOC). And that would undoubtedly be a better option than using a credit card since you'd have to pay 4 or 5 times as much interest.
Should I stop giving?
There can be a temptation during a financial crisis to pull back from giving. Indeed, if you are in a personal crisis and unsure of how you are going to pay your bills, you have the freedom to reduce or suspend your giving altogether.
It may be reckless and irresponsible to give away what little you have if you are in the midst of a significant financial struggle. You may want to make your needs know so that others who can continue to give can help.
On the other hand, we should always seek to have God's heart of love and compassion toward others. You may not be in a position to give financially, but you may find practical ways to help.
Most of us could follow the example of the Macedonian Christians found in 2 Cor. 8. They were going through some tough and uncertain times, just as we are now. They had little or nothing to spare, yet they gave anyway, "even beyond their ability."
The key message is that we should always be compelled by God's love and compassion to help those who are in need—there is always someone worse off than we are.
"But if anyone has the world's goods and sees his brother in need, yet closes his heart against him, how does God's love abide in him?" (1 Jn. 3:17).
It's also crucial during this time to continue to give to your local church as well as other ministries you support. Even though many churches are meeting physically, the bills continue to come in, and pastors and staff need to be paid.
God's love and faithfulness toward us should move us to continue in love and faithfulness toward others so that, as Paul said to the Macedonians, "(we) also excel in this grace of giving."