What we’ll cover:
The Covid-19 pandemic has brought many uncertainties to seemingly every aspect of our lives, and that includes our finances. With everyone from your neighbor to your social network shouting different (and often conflicting) bits of information, it’s easy to feel lost when it comes to money matters. Not to mention, you might be mulling over a lot of questions: Do I have to repay my stimulus check? Should I keep contributing to my retirement accounts?
We’ll walk you through eight pandemic money myths and help you sort fact from fiction. That way, you can tune out the noise and feel more confident in your financial choices.
The CARES Act (aka The Coronavirus Aid, Relief and Economic Security Act) gave $1,200 to eligible individuals who reported a maximum of $75,000 in 2019 (or in 2018 for those who hadn’t yet filed their 2019 taxes). Those who earned more than that $75,000 could still receive a stimulus check, but for every $100 over $75,000 they make, they’d receive $5 off of the $1,200 amount.
Since the government gave you money, you might be wondering if you have to return it at some point.
Though it sounds too good to be true, this money was given to qualified Americans as spending money to boost the economy. The stimulus check is a refundable tax credit for 2020 – it’s not an IOU between you and the government and it won’t increase your taxable income for the year.
Bottom line: you won’t need to repay the IRS in the future if you were eligible to receive the check in the first place.
In addition to not having to pay it back, if you haven’t received a stimulus check and you’re entitled to one, you can still get it when you file your 2020 taxes in 2021.
Since taxpayers received the stimulus check from the IRS, you might be worried that you’ll owe taxes on it. After all, anything associated with the IRS must mean taxes are involved, right?
Though the stimulus check can feel like a paycheck of sorts, the IRS thinks of it more like a refundable tax credit rather than income, so it follows a different set of rules than traditional income. Per the IRS, the stimulus check does not count toward your gross income and you won’t have to include it on your income when filing your 2020 taxes. The stimulus check won’t reduce your refund next year, either.
You may have heard about the Health and Economic Recovery Omnibus Emergency Solutions Act (the HEROES Act). This legislation would include a second round of stimulus payments for many Americans of $1,200. The income requirements remain the same as the stimulus payments provided by the CARES Act.
While the HEROES Act was passed by the House of Representatives in May, it has not yet been passed by the Senate. Until legislation is passed making the second round of stimulus money official, we will simply have to wait and see.
In times of economic uncertainty, it can be hard to think about saving for the future, especially if cash flow is tight. On top of that, if you’re unsure about job security, it might seem like a good idea to scale back on your retirement contributions, or maybe even stop contributing all together.
If you’re in a position where you have to choose between continuing your retirement contributions or paying your mortgage, then certainly go with the mortgage payment. However, if you’re someone with solid job security and you’re not worried about changes to your income, it’s probably a good idea for you to continue contributing to your retirement savings. That’s because the key to your retirement savings lies in the power of compounding.
Every time you add to your retirement account, that contribution has the potential to yield returns and help your nest egg grow. And pausing your contributions now could cost you in the future.
Let’s look at hypothetical example that assumes an average rate of return of 8.8% for a portfolio comprised of 60% stocks and 40% bonds. A 35-year old who plans to retire at 65 and starts out contributing $500 per pay period will have over $1.7 million saved for retirement. On the other hand, someone who starts contributing the same amount at age 45 will have just over $655,000 saved.
To be sure, both are impressive numbers. But in this example, the difference in ten years results over a $1.1 million difference in savings – pretty significant!
Of course, this is just an example and the amount your savings is able to grow will depend on a number of factors including your investment portfolio, your account’s average returns, and how much you’re able to regularly contribute (not to mention any employer matches). But hopefully these numbers show you that every little bit counts, and starting contributions later – or skipping contributions during times of uncertainty – could have a significant impact down the line.
Thanks to the expanded unemployment benefits under the CARES Act, many people who’ve been terminated, furloughed, or find themselves unable to work as a result of the Covid-19 pandemic can claim unemployment insurance. For some of these workers, their unemployment checks – plus the additional boost from the temporary $600 FPUC weekly payments – may have been more than what they were making before. That income boost could worry business owners, who may think that their employees will pass up work because they’re getting paid more with unemployment.
Unemployment benefits are typically only given to individuals who have been laid off or furloughed, under specific circumstances. The other important part: You must also be able and willing to work.
So when an employer asks a previously laid off or furloughed employee to return to work and that person doesn’t choose to return (but can), they are no longer eligible for unemployment benefits unless they meet certain exceptions.
To put it simply: someone can’t refuse to work in order to collect unemployment. (This is the case under both the CARES Act and with traditional unemployment assistance.)
In March, you might have noticed that parts of your portfolio crept down and you were left with smaller balances in your investment accounts. That might have left you worried that, as a result of the pandemic, your portfolio might not recover.
Investors have seen the unpredictable nature of stocks during a pandemic firsthand. As the Covid-19 outbreak became a global pandemic in March 2020, we saw stock prices plummeting.
Yet in June, the stock market had four consecutive weeks of climbing back up and the S&P 500 returned to where it had been at the start of 2020. All the ups and downs can make even the most confident investor nervous.
While it may look like stock prices react directly to Covid-19 (or any other type of economic uncertainty), it’s important to remember that they go up and down based on investors buying and selling. It’s difficult to try and predict what the stock market will do next, pandemic or not.
One of the most important things you can do is be aware and realistic about market volatility and its ups and downs. Investing is about playing the long game, so remember to stay the course and avoid making emotional decisions during times of uncertainty.
There are a few reasons why you might be scoping out homes right now. Maybe it’s the desire to move from your cramped apartment to the suburbs where you can finally set up a real home office versus working from your couch.
Or perhaps you’ve been eyeing the falling mortgage rates since as of July 2020, 30-year fixed mortgage rates dropped to their lowest percentage since 1971. And since we’re in a recession, maybe you think now is the perfect time to score a deal on a home – people probably aren’t looking to make big purchases now, right?
Lower mortgage rates coupled with being tired of seeing the same four walls since March may lead you to think this is the perfect time to buy. However, while mortgage rates have dropped, housing prices haven’t fallen with them – and people are looking to buy.
In April 2020, the median price for a home was actually up 7% from last year, and prices shot up in every region of the US, according to the National Association of Realtors.
You might also be surprised to know that it could be harder for some borrowers to get a mortgage right now. Because of the shaky economic climate, lenders want to be extra sure that if someone signs for a home loan, they’ll be able to pay it off.
As a result, many have upped their credit score and down payment requirements, while some have stopped issuing certain loans completely. All this to say, you can still become a homeowner right now, but you might be coming into a tougher housing market and lending terms.
In pre-Covid times, when you could readily redeem points and miles for flights and hotel stays, you might have been game to pay the high annual fee on some travel rewards cards. But right now, annual fees on these cards can feel excessive in a time when travel is restricted and many plans are on hold.
Before you cut up your card, find out how your rewards work. If your credit card gives you a flat number of miles or points for every dollar spent, it could be worth holding on to, especially if you can redeem those rewards for non-travel related expenses.
Some card issuers have also expanded their rewards offerings in response to the pandemic, so it’s worth checking in with them to see if anything has changed.
On the other hand, if your credit card only rewards you for specific travel-related purchases, it’s understandable that the high annual fee might not feel worth it right now. If that’s the case, or your rewards can only be used within a certain timeframe, or have other restrictions, you might want to consider if it makes sense to keep that card.
If you decide a certain card isn’t worth the annual fees, you could ask your issuer if you can downgrade your card to a no-fee, or lower-fee option. If you decide to downgrade your card or close it out entirely, be sure to ask your issuer if you’ll be able to keep the rewards you’ve already earned since the policy differs issuer-to-issuer.
You should also keep in mind that closing a credit card may lead to a drop to your credit score.
This article is for informational purposes only and is not a substitute for individualized professional advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.
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