At this given moment, I believe the market has discounted all of this bad news that's coming that it's expecting and it's, again, it's confusing because again, they're not tied lockstep. COVID, the economy and the stock market are not acting in lockstep. So it's really important right now to have that financial plan in place and not be making knee-jerk reactions as we navigate this. Welcome to Keen on Retirement, a show dedicated to helping you thrive before and during your retirement years.
If you are looking to grow and protect your wealth and want to make the second half of your life the best half, then listen in as well as advisor Bill Keen and his host sort of the key issues that you need to know in a lively and candid way. Hello, everybody and welcome back to another episode of Keen on Retirement. I'm your co-host Steve Sandesky with me is Bill Keen and Matt Wilson. Hey guys, how are you doing today?
We're doing good here in Kansas City. Steve, we are officially since we last recorded on Shelter at Home here in Kansas City. Steve? Yeah, well, we're pretty much locked in at home here as well up in northeastern Wisconsin.
In fact, I just heard this morning that our first confirmed case of COVID-19 was announced here and the person is now in the hospital in Green Bay. So it's getting close to home here as it is. I'm sure for pretty much everybody that's listening to this today. That's right.
It's been a real health threat. It's a financial threat or it certainly feels at least at this moment as a financial threat as people go through this and experience the bear market. Although some could say that maybe we're out of the bear market now, but we've established a bull market. Maybe I'll let Matt speak to that.
I wouldn't go that far probably, but we did have a nice recovery off of close of 10 days ago or so. And then it's also a mental health threat. I think it's good to honor and acknowledge that each person is experiencing this differently and in their own individual way from the grade schoolers that have their year turned upside down. And of course, I'll hear many of them complaining.
I'm likely to be home and being taught by mom or dad there and getting some time off of school. But all the way to the workers that have been furloughed, the ones that haven't, the ones that are on the front lines, God bless them, the work that they're doing to the retired person that's living on their assets, all experiencing this very differently. And then add on to that that we're in this social distancing world that is very new to most of us. But I can tell you this, it sure has simplified life for us.
I'm spending more time with the family, grilling out, taking long walks, enjoying the sunset, playing board games, talking about family values, all things that we probably should have been doing more of anyway, but certainly not under these circumstances. Yeah, similar on this end as well. I've worked from home for many years. So from a working standpoint, it hasn't been that different.
But what has been nice is that with the virtual technology that we have today, we've been doing a number of what we call fam jams. So we've been getting the family together via video in the evening. And so that's been a lot of fun. So my kids and their assorted friends and then later on this week, we're going to be doing one with my siblings and their children so that we can get all the cousins together who are in far-flung places all over the country here.
So that's been really good. And I'm hopeful that we'll continue to do that even after the restrictions that we have in place right now go away. So yeah, and just want to second what you said there, Bill, about all the health care workers out there and all the essential workers who are out there supporting all of us through all of this and really putting their lives literally on the line. So we're very thankful and appreciative of everything that they're doing.
All right. Well, today we want to spend just, I think just briefly talking about what's happening here in the financial markets. And then we want to spend a little bit of time talking about the new CARES Act of 2020. So a lot of things have happened here in Congress over the past week or so.
So we'll spend a few minutes there. This is going to be a little bit of a shortened podcast because we want to get these out a little more frequently in light of what's happening here. So we'll just jump into it, guys. The market has recovered a bit from the lows here that we've experienced towards the end of March and headed into the beginning of April.
And we'll see what happens from here. I know Bill, you mentioned did we start a new bull market. Well, hindsight will be 2020 on that answer. That's right.
So they kind of defined that as, well, once we recover 20% from the lows, the new bull market started. But if we go back down again, they kind of resettled that. It doesn't feel like we're in a bull market. Sure, though.
And you never know till after the fact. That's what we're talking about. Well, let's bring it back to our favorite investor Warren Buffett. It's be fearful when others are greedy and greedy when others are fearful.
And if you're fearful right now, I mean, you know, there's investors like Buffett that are maybe getting a little excited about some of these lower prices. Well, and even for folks that have diversified portfolios, like the folks we work with, we're going to take advantage of some of these things as well. So looking around things that could be somewhat opportunistic, as far as the financial side of it goes with managing portfolios. That's right.
Yeah, there's opportunities in the investment world for sure right now. And a lot of this really, the market reacted to the Fed stimulus, you know, and also to the government stimulus with the passage of this CARES Act. But then it kind of melted down right after that. Now we've recovered a little bit since then.
I think what the market is responding to is the fact that, well, the economy has definitely shut down across the country from most part. We also have the government intervening via fiscal monetary policy to help bridge that gap until when we can open the markets back up again and the economy back up again. And the big sell-off that we've experienced to date, which was almost 39% from peak to trough. We talked about this in the past.
It's a very forward-looking animal. And it's taken in all the information and trying to process an accurate price at any given moment while it's open. And in my opinion, it was estimating kind of Armageddon at that point. And I think since we've realized the financial system itself is intact, totally different than the 08, 09 scenario.
And I think the market and the participants, while the bad news continues to come with additional numbers of cases being reported, additional deaths occurring in our country and across the world, the market is still looking past that. And it's saying, where will we be not next week or next month, but where will things be in six months from now or one year from now? And that's why it's very difficult when we look at COVID in a vacuum or we even look at just the economy itself in a vacuum or we look at the stock market in a vacuum. They're all intertwined, but they don't act in congruence.
You might remember we received the worst unemployment report in the history of our country. I think 3.2 million unemployed. And the day that was released, the market was up substantially. And if you were watching the headlines and trying to make heads or tails of it and trade that even, imagine the people that try to be these day traders, you would be very confused about why was the market up so much when that number was released that morning.
The reason is because the market already assumed that. The market already knew that was coming. And I believe that where we sit today and this week, the market knows the bad news that is coming. So the question is going to be how much additional bad news comes that it's not expecting or with things like Abbott Labs new five minute positive test, I think 13 minutes for a negative test, pushed that through and got it out to market almost instantaneously here this week where the fact that Walmart is hiring 150,000 people, Amazon is hiring 100,000 people, CBS, 50,000, Kroger, 10,000 Walgreens, 9,500 Papa John's, 20,000 Ford and GE are making ventilators, private and public sector is working together.
Smart as scientists in the world in the US anywhere are working together to solve this, whether it's a vaccine or treatment. Any break from a positive standpoint brings the market higher from here. But at this given moment, I believe the market has discounted all of this bad news that's coming that it's expecting. And I get it.
It's confusing because again, they're not tied lockstep. COVID the economy and the stock market are not acting in lockstep. So it's really important right now to have that financial plan in place and not be making knee-jerk reactions as we navigate this. So with all that, the government has responded with the CARES Act and we finished 2019 talking about the secure act and now we have the CARES Act.
Remember, they're big on acronyms here. Now, do you all remember what the secure act stood for? Well, wasn't that long ago we were talking about it. Do you remember?
Steve, you've got this, I think. Oh, no, you're putting me on this here. I hear his keyboard. Yeah, no.
Setting every community up for retirement enhancement. That's what the secure act was. Say that's what it's best. So now we have the CARES Act.
So now you know what that stands for. I have it in front of me. So, okay, coronavirus, aid, relief and economic security act of 2020. I think they have a full-time person on staff that comes up with these acronyms.
I mean, that is going to be a nice memoir, the acronym writer for the government. I mean, who knows how they come up with some of the stuff, but it's interesting, nonetheless. But it is a $2 trillion package that includes nearly half a trillion dollars in individual rebate checks and another $500 billion for support of severely damaged industries and nearly $400 billion for support, including tax credits for wages and payroll, tax relief and then over $300 billion of support for state and local governments and then almost $150 billion for various initiatives to support hospitals and health care system. So, a very big bill.
I mean, we're talking $2 trillion. The Federal Reserve side of things estimated at $4 trillion. So, we've got a $6 trillion package that was just passed. And if you want to say the bazooka was fired at the COVID virus, you can say the bazooka was fired because we weren't even talking at $1 trillion when we got into OA.
Remember all the commentary about the TARP and what that was going to cost of $700 million back then? I was going to say, well, inflation's made this not as big a deal, but we've had much inflation. Let me really say in the last 12 years. So, no, it's big.
It's a big way around it. I mean, and it makes sense considering that we've had an economy that is now just put on pause for maybe it's 90 days even. It could be even longer than that. But to have an economy essentially, not all of it.
We're just talking pieces of it, but it adds up over time. And so, let's talk about a few of these things that definitely impact our listeners. And one of the things that I think we're going to get a lot of questions on is the recovery rebates. That was a big part of this.
There's been a lot of discussion around what that is. And those are the checks that are going in the mail. The technical term is their recovery rebates. And it's estimated that 90% of taxpayers will receive some amount.
So, it's a phase out dollar amount. So, the more income that you've had in previous years, the less that you'll receive. So, here's where it starts. So, the CARES Act provides a refundable income tax credit against 2020 income of up to $2400 for a married couple filing a joint return.
Other filers will receive a credit of up to $1200. So, those are single filers. And the amount then increased by $500 for each child of taxpayer has under age 17. Okay.
There's an AGI because you heard the word up to. So, there's a threshold. And they're looking at adjusted gross income. So, that's different than taxable income.
So, the adjusted gross is on the front page of your 1040. So, if you're looking at previous tax returns, just look at the very front page of your 1040, you'll see adjusted gross income. So, the phase out begins at $150,000 for a married filer, $112,500 for a household, and then $75,000 for all other filers. So, that'd be your single filers.
And then for every $100 that a taxpayer exceeds their credit, their potential recovery rate is reduced by $5. Okay. So, you guys following along with this? I'm following along.
I'm going to give our listeners a website to go to, which you put it in the show notes. It's Kiplingers has a stimulus check calculator website. Kipling your numbers in and it gives you your estimate there. So, it's peer to be pretty accurate.
So, we'll make sure we include that in show notes. I've seen a lot of them out there. And I think the IRS even will have one out here shortly too, because there's still a lot of pieces to this that the IRS needs to provide clarity on and where to go and how to do things on how you're going to receive the funds and when they're going to be mailed out. You say mailed out.
Are they literally mailed out? Or do I understand it right that if you had your tax return direct deposit into a bank account, it may be for a CCC purposes direct deposit. You know, essentially, they're looking back at your 2018 or 2019 tax return if you filed your 2019. And they're issuing this tax credit, but they're issuing it now or as soon as possible according to the government, which for all intents and purposes, it's probably going to be early May.
And that doesn't mean that if your income was higher in 2018 or 2019 and you were phased out of this, it doesn't mean that you won't get it in 2020. It's just based on your 2020 income when you go to file that tax return in 2021, they'll actually give it to you if your income was low enough, but you won't get it to actually buy your taxes. So, in 2021, in that case, that's right. It'll be in the form of a tax credit, which is dollars that you receive.
So, tax credit is good, but it just won't be until that point, because your income was too high on those previous look back years. Well, hopefully this crisis is over well before then. And they haven't come out with the deadline for 2019. So, meaning that if you haven't filed your 2019 taxes and they're going to be lower than 2018 and you would qualify for a higher rebate, it's recommended to just get your taxes filed to go ahead and get that in the system.
You may have missed the cutoff already because again, they haven't said what it is, but at least you're doing your best to try and get it because it might make sense for you to do that. And if your 2019 is higher than 2018 and you haven't filed well, you can wait now until July 15th to file your 2019 taxes. Now, there's other pieces to this besides just these recovery rebates. And that is they provided some relief when it comes to retirement plans.
And retirement plans include 401Ks, IRAs, 403Bs, these employee sponsored plans that you can then roll over to IRAs and what have you. And I think the next biggest piece to this is they have waived the required minimum distribution. Now, a lot of people need that money to live on, so they may go ahead and take their required minimum distribution. But what do you think the thinking is on that?
I know they waived those. Do they waive those back in 2009? They did. And 2008, you don't have to take it if you haven't taken it already.
I mean, the idea, I believe that there are a lot of people who forgot this is that if folks had their assets and they're down, they don't want them to have to sell them at a bad time to take those dollars out of those accounts. We recommend highly that folks have at least five years of their income needs in fixed-income and bonds so that they would never get caught short like that, so to speak, having to sell something at a bad time. But I think that's the thinking on this particular aspect to this. That's right.
I agree. I mean, I think they just look at it and say, well, if we don't have to force people to liquidate investments, let's go ahead and waive that. And so they kind of set the precedent in 2008 with that. And that's, I had actually been kind of commenting to folks, even though over the last couple of months as I've been talking to them that this is possible, they've already done it before.
We could see them waive the RMD. And they did. So what happens if you've already taken your RMD early in the year before all this? We even hurt coronavirus.
If you haven't taken it, of course, then you don't have to. But if you've already taken the distribution, you can put the money back via a 60-day rollover. The IRS has this rule that says, if you take money out of an IRA and then you read a positive back inside, and another IRA doesn't have to be the same one, but just another IRA within 60 days for all intents and purposes, you didn't take the distribution out. And you don't owe income tax on it.
That's a little restrictive because you can only do one of those every 365 days. So if you've already done that once, then you may not be able to do that again in the last 365 days. But that is one option. Now, the other option is if you are impacted by the COVID-19 virus, then there's actually some special rules around taking distributions and spreading the income out.
And so you could utilize that. But if you're not impacted by COVID-19 and it's been longer than 60 days and you don't have any other recourse, you have to just pay the tax on it. So even though they've repealed it at this point. Let me quickly list off what impacted by the coronavirus means in the Care Act.
It's one, it's having been diagnosed with COVID-19, have a spouse or dependent who has been diagnosed with COVID-19, have experienced adverse financial consequences as a result of being quarantine furloughed, being laid off or having work hours reduced because of the disease are unable to work because they lack childcare as a result of the disease. We're on a business that is closed or operated under reduced hours because of the disease or and this one gives it a little bit of broad brush or you meet some other reason that the IRS decides to say is okay. So I think they've tried to be very broad in this aspect to the Care Act. And I can see them come out with more clarifying language too on that, especially that last bullet point because those rules apply throughout the rest of this year.
So what those rules mean is that you can take distributions and you can pay them back over three years. So if you're impacted by those items that Bill just mentioned, the Care Act is allowing distributions of up to $100,000 to be made from IRAs and employer sponsored retirement plans or some combination of the two. If you're impacted by those, you wouldn't be subject to the 10% early withdrawal penalty. So if you're under 59 and a half, you pay a penalty for early withdrawal.
So that would be waived. You're not subject to mandatory withholding requirements. Now you'd still pay income tax. You can repay up to that $100,000 distribution over three years.
So essentially you can say I'm going to act like it didn't happen over the course of the next three years. Now you'd have to amend those tax returns because it's going to be taxable in the year you take it out, but then you pay it back in a portion of it in year two and then the rest of it in year three, well, you'd have to go back and amend those returns and it would reduce your tax liability on those previous years. To get a tax credit for the prior tax pay or you can wait until we understand it the last day of the third year and pay it all back. And you've essentially talked earlier about a 60-day rollover that's existed for many years.
This is now a three-year rollover opportunity of up to $100,000. And we've shifted now from talking about the RMD being waived for 2020 into this new aspect to this where you can take Alikman at $100,000 from your 401K or IRA under these guidelines. So there's some real flexibility there as well. And not many people are in a position to have to do this, but it is providing some opportunity if that is a kind of a less resort.
Yeah, given people some, at least some flexibility when it comes to the retirement accounts to help them essentially bridge this gap so to speak to when they can get back to work or not as impacted by the coronavirus. The other piece to that too is the income can be spread over three years as well. So you can take the $100,000 out, no plans to repay it, but then only have one third of it count over this year, 2021, and then 2022 as taxable income. When it comes to the employer-sponsored plan part of it is they increase the maximum loan amount.
So there's a lot of people who are in the 401K loans and in certain situations we do talk to folks about utilizing 401K loans. Not real common, but that maximum used to be $50,000. Now they've increased it to $100,000 and they've also changed it to where 100% of the account of the vested balance can be used. There used to be limits if you didn't have as much in there, you couldn't take as high of a loan.
A few other things. I don't think these are as timely when it comes to our folks that are near retirement or in retirement, but they increased a little bit on the charitable deduction side. If you're giving away a portion of your income, there's a limit to how much income you can offset with charitable donations. 60% was the previous limit and how they've waived that completely.
So you can donate all your income and not be subject to income limit. If you make 100,000 year-old rules, you could donate 60,000 to charity. You can donate as much as you want. You just couldn't get a deduction for more than 60%.
Now they're allowing you to donate your entire salary and get a deduction for it. I mean, many people will be doing that. It's interesting that that was thrown in here. Yeah, and then they have a $300 above the line deduction for qualified charitable contributions to cash.
One other thing too with the RMD is the QCDs did not go away. So you can still donate directly to your church or to a charity from your IRA and utilize the QCD provision. That did not change. Another thing that we want to cover on that.
Then they had some other things on medical expenses when it comes to Medicare and the expansion of that and covering like HSA's and FSSA's covering over-the-counter expenses. Really the next biggest things on this CARES Act was related to businesses and unemployment benefits. So overall, this sounds like a pretty comprehensive package of changes here. Yeah, they spent a lot of time debating it.
It was one of those things while they were talking about it and the markets definitely were reacting to their lack of action. It was like, well, I guess they wanted to make sure they hit this from all fronts. As frustrated as it is to see the politicians going back and forth, I have to honor them for the work that they're doing right now. And maybe somebody might say, no, they don't like politicians, but I don't like the back and forth.
But I do have a deep respect and appreciate the work that they do where they're working into the wee hours of the night. Imagine trying to hammer all this out. You have 900 pages. Right.
It's amazing work. And we certainly appreciate it here. At least I do what they're trying to do for us. And yeah, there's going to be some planning opportunities that come out of this.
If someone doesn't have to take an RMD, like Matt said, that could maybe open up the door for a Roth conversion in that year. There's going to be a lot that we're going to bring to you. Our listeners here, as we proceed on through this time period, there's going to be opportunities. We're going to bring you, continue to bring you what we're seeing, some of the rules of legislation, and we'll continue to stay in close touch as, again, the coronavirus plays out, the economy plays out, and the stock and capital markets continue to play out as well.
Always remembering you've got to have a financial plan in place. You've got to look at what you need to live on in the coming years, whether you're 10 years out or 20 years out or currently in retirement. If you have a plan in place and we know these things are coming, do we know a pandemic was coming? No, we did not.
Did we know a bear market was coming at some point? Yes, we did. We've got a lot of talks about the coming correction. We have a blog out called, What if I retire in the market crashes the next day?
That was written I think 18 months ago. We talk about this consistently on our program. The five years of income needs and bonds and fixed income to get through these difficult times. And now more than ever is the time to realize that and to get those financial plans out, keep those updated.
If you don't have a financial plan in place, it's being shepherded alongside you by a fiduciary advisor. Now is the time to really think about taking a look at it via a Zoom call, of course. I did want to also mention, though, sorry, that we have a webinar that we just posted yesterday. It's a little more in-depth than what we were trying to cover today quickly.
We're going to talk about our objective view of what we're seeing. We're going to talk more about COVID, the economy, the stock market, and this government stimulus that Matt talked about today. That will be hosted on our website that you can tune into that if you'd care to go back and watch that. You just posted yesterday.
Great. Well, I appreciate that, guys. And for all the information that we've talked about here today, you can go to keenonretirement.com. That's K-E-E-N on retirement.com.
We've got all the past episodes. All the blog posts are out there as well. So guys, I appreciate it. You're really showing great leadership here through the crisis with all the great work that you're doing with these podcasts, with the blog posts and really helping people navigate to this very difficult time.
So thank you. And we'll look forward to the next episode of Keenon retirement. Thanks, David. Everybody, stay healthy out there.
We'll talk soon. The opinions expressed in this podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing.
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