By Darren Wilcox, JD, CFP®
With the fall in temperatures has come a rise in the number of COVID-19 cases, and unfortunately we are all impacted in some way by this virus. While social distancing, wearing a mask, and avoiding non-essential travel are all great ways to reduce your likelihood of contracting COVID-19, here are some additional tasks you can consider at the same time to ensure your financial house is in order (and give you something to do with the extra time you have at home).
Review Estate Documents: When was the last time you dusted off your estate documents (Will, Power of Attorney, Health Care Proxy) and looked them over? Does your Will still include a section naming a guardian for your children who are now long past 18? Does your Power of Attorney name an agent who is no longer a good fit? Or maybe you don’t have one or more of these documents, you’ve been meaning to see an attorney to get them drafted but haven’t taken the time to do it? Now is your chance to get this done.
Having current estate documents is important, especially when you might need someone to take over paying your bills or talking with a doctor on your behalf. Most estate attorneys are still working regular hours and are available to draft estate documents that will bring you peace of mind. Take an evening, or a weekend, and look over what you have, then map out changes you want to make and an estate attorney can take it from there.
Check retirement account beneficiaries: Your Will determines where your property goes when you die, with some exceptions, including your retirement accounts (IRA, 401k, Roth IRA, etc.). Retirement accounts have a named beneficiary so even if you state in your Will that Cousin Martha is to inherit your IRA, if the beneficiary form says that your niece, Emma, receives the IRA, then Emma, not Martha, receives the IRA after your passing. It’s important to do a regular review of your beneficiaries to make sure that your retirement accounts go to the person or persons you want them to go to after you pass away. Any changes you want to make can be done by contacting the broker where your retirement account is held – sometimes the form can be filled out online and submitted electronically.
Rollover of 401k to an IRA: While you are reviewing your retirement accounts, maybe you have a 401k from a former job that’s still sitting with the old company. Or you were a victim of a layoff during the current downturn and your 401k there is no longer active. When you leave a company your 401k (or 403b if it’s a non-profit or educational institution) belongs to you and you can choose to transfer it somewhere else. Sometimes your former employer will start to pass on administrative fees to you since you no longer work there, and that can get costly. Or if you lose track of the account and haven’t reviewed the holdings the investments might not be allocated in a way that protects you should the markets turn lower as a consequence of current economic conditions. Even worse, if your former employer has entered into bankruptcy proceedings, the 401k can be caught up in those proceedings, making it much more difficult to transfer.
If you decide to move it, you need to make sure that you do it correctly to avoid having to pay income taxes right away. The key is to have it transferred as a rollover and not processed as a distribution. The preferred way to transfer a 401k is by a direct rollover, also known as a trustee-to-trustee rollover, which will transfer the funds directly from the current custodian to your new IRA custodian. That will make sure the account maintains its tax deferral and you won’t have to pay any income taxes until you actually start taking distributions (hopefully not until age 72).
Review your credit report: You are not the only one with extra time on your hands in the current environment. There are those who are out on the internet and elsewhere, preying on people and looking for ways to make quick money through cybercrime. One way to protect yourself is to regularly review your credit report to look for new accounts and other inquiries that you do not recognize. The federal government requires each of the 3 major credit agencies to provide a credit report once a year for free. They will usually try and up-sell you on other products and services, but the base report is absolutely free once every 12 months. You just have to go to www.annualcreditreport.com and follow the instructions to retrieve your report from one of the 3 agencies. A good approach is to stagger the reports, requesting one every 4 months. In that way you can rotate through the three agencies, checking your credit report 3 times each year for free, and hopefully finding nefarious behavior before it can significantly harm you. By monitoring your reports and reviewing your bank account and credit card activity regularly you will be well on your way to staying ahead of cyber thieves who would love nothing more than to wreck your present and your future.
Budget/cash flow review: Many of our habits and patterns have been altered, and will continue to change if the uptick in positive cases continues. It’s a good time to review your spending and make sure that your shift toward more carryout meals and online purchases hasn’t pushed you into the red zone (spending more than you are bringing in). Perhaps there is something you are spending money on that you don’t really want or need. You can identify that expense and move it into something else – possibly additional savings like an emergency fund which can protect you when the unexpected happens. There is great value in tracking your spending, if you know where your money is going then you are less likely to be surprised at the end of the month if your bank account runs low.
Invest in yourself/your family: Finally, with so much on hold right now, including normal travel and entertainment, it is worth taking a step back and remembering what is important in life. Maybe you can revisit a hobby you haven’t done in years, or take an online college or continuing education class that will help you in your career or simply add enjoyment to your personal life. Perhaps there is something fun your kids have been wanting to get for the house and this is a good time to do so, as long as it matches up with your budget – especially if it’s something you can do as a family while you are spending more time at home. If there’s one thing we can learn from this Pandemic it’s to focus on what is most important in life (relationships and our health, for example) and do our best not to take those things for granted in the future. Find ways to turn this situation to the positive and don’t be afraid to re-direct a little of your financial resources toward those goals. Your memories will remain long after this Pandemic has faded, make sure you create positive ones to balance out everything else going on this year!
We will eventually get through this Pandemic and how we emerge from it, the lessons we learn, is up to us. Whether you do one or more of these, or have your own list, the key is to take action of some sort and keep yourself grounded. If you would like help with any of these areas, or are interested in a second opinion on your financial situation, you can reach out to an advisor at John G. Ullman & Associates, Inc., and we will be here to help.