Color of Money Live

Apr 09, 2020

Welcome to a weekly discussion about your money hosted by Michelle Singletary, nationally syndicated personal finance columnist for The Washington Post.

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Thanks for joining me today. Not a great start with news about 6.6 million unemployment claims. 

I know I'm trying not to get so depressed. How are you doing? What's your financial situation. Ask questions but this is a safe space to vent too. 

And certainly could use some Thursday testimonies. 

Let's get started. 

Thank you Michelle, for your wisdom, and telling people to prepare for emergencies, life happens, etc....Because of your teachings, and many of the folks you interview, who share/offer great everyday money/life advice, I have prepared our household with different pots for emergencies; 1 years expenses; an 8 month emergency fund. I am grateful for your teachings, because we were prepared, and on our way to having all our things in order. I have just written my will, recently, reviewed it, ready to sign, along with the other documents they recommend. I have gathered together a NW statement every quarter; (I may skip 1st quarter this year, d/t circumstances). And because our health is precious, who knows what may happen in the weeks, months to come. I have a pot for funerals saved as well; it will cover one at this point. And, the company I work for began having staff work from home over a 3-4 week period, I had just completed week 2, when last Friday, I was informed they were laying me off, "temporarily" -- but is it? who knows. So glad our home is paid for; our kids are through college, we are in late fifties....so who know how easy it will be for me/us to find other employment if it comes to that. For the time being, my husband is essential, and should remain so throughout the times. But we know that economics vs. employees can change at any time. Thank you for keeping my path aligned for an emergency such as our current one. Because I follow your columns, I also have found other finance blogs to follow, and make it a point to read at least one finance book a quarter. She/So. Indiana

Thank you! I needed this. 

Ms. S: My wife and I have mandatory withdrawals from our IRAs (we both are over 71). Since we're fortunate enough not to need the income right now, is there any reason we shouldn't go ahead and stop taking out the money?

Definitely count your blessings. Under the Cares Act, the $2 trillion stimulus package required minimum distributions or RMDs have been waived for 2020. And that's a good thing because very likely your account is down from Dec. 31, 2019, which is what your 2020 RMD would be based on. 

So, yes if you can hold off might be better to skip the RMD. Of course, if you need the money, you have to do what you have to do. 

Read: There’s help for older Americans caught between a falling stock market and low interest rates

 

My student loan payments have been suspended. I'm still working and receiving my regular pay check. However, I work for a local government so the impact of this financial crisis may not be felt until later. Should I keep making my payments voluntarily or put the payments in savings for future use?

Unless you are in a Public Service Loan Forgiveness (PSLF) program, yes I would continue making payments. Think about it. The interest rate has been dropped to 0%. This means that if you make payments it all goes to principal. And that means you pay off the loan sooner. If you don't need the break, keep paying. 

Here's a really helpful FAQ from studentaid.gov

To my point, according to the site.

“During the period of 0% interest (March 13, 2020, through Sept. 30, 2020), the full amount of your payments will be applied to principal once all the interest that accrued prior to March 13 is paid.”

 

“If you have a Direct Loan, were on a qualifying repayment plan prior to the suspension, and work full-time for a qualifying employer during the suspension, then you will receive credit toward PSLF for the period of suspension as though you made on-time monthly payments.”

Hi Michelle. I am a big fan of yours and have been following you for awhile. Quick question: my ex husband (who I rely on for child support) and both of my parents were laid off. I am still currently working and have 2 dependents. My home mortgage offered me assistance by allowing me to suspend the next 3 months and possibly move the payments at the end of the loan. I do have an emergency savings account ($7k) however, I am nervous about the next coming months and am afraid of using the cash. I believe this pandemic and affects of the economy will last alot longer than people think (at least a year). With that being said, should I take the offer on the assistance or just use my savings? According to the lender, no late fees or past due statuses will be reported. I think the 3 months assistance will help me sustain longer over the course of this year. What do you think?

Thank you for your kind comments. I think with so much financial uncertainty in your life and now a probably stop in child support payments take the mortgage break. Under the Cares Act, you can actually get 120 days initially with the option of another 180 days (12 months total). BUT make sure your loan is federally-backed. There's more protections and the likelihood that you can tack on the missed mortgage payments at the back of your loan. 

Please read: If you can’t pay your mortgage, here’s what you need to know

 

Michelle, in this emergency we are trying to keep as much liquidity as possible -- in other words, build up our emergency funds past three months to six or more. We are cutting back on retirement contributions, stopping our extra mortgage payments, and even using our zero-interest HELOC to pay bills when possible. (The good news is that we can't use it on frivolous things!) I know you would never actually advocate against paying down debt, but how angry are you about this strategy?

Not angry at all! These are extraordinary times and this means you have to employ extraordinary measures. 

In fact, I just wrote a column recommending many of the things you just mentioned. I would however try if you can to not tap the HELOC unless you absolutely have to. 

Read: Need cash now? Here are some options, with pros and cons.

 

Please confirm if RMD is waived not postponed to double up next year. Thanks!

Of course. The 2020 is suspended and no -- at least that's that I was told by several financial planners -- you will not have a double RMD in 2021.

Do you understand how this would work or is it even a thing? I'm a graphic designer and there's no rhyme or reason to my projects. Would I qualify?

If your income has stopped or been drastically cut because of coronavirus you are very likely entitled to unemployment benefits. Under the Cares Act, the list of who can qualify was expanded to include the self-employment, independent contractors, freelancers and gig workers (think Uber). 

Now, I won't lie the reports are that it's taking a miracle to get through to a person or to file online. So pack your patience and file right away. 

Read: State unemployment systems tested by surge of applicants

And this helpful FAQ: Coronavirus unemployment guide: What to do if you get laid off or furloughed

 

 

He/his from Austin. Michele. Success Story about diversification of retirement savings. My retirement portfolio is highly diversified. But even my bonds are down in value along with, of course, my stocks. The one financial instrument that has not changed in value and will continue with the same monthly value is my annuity. More than a few "financial advisors" (one in particular) disdains annuities condemning them for lack of growth and low interest earned. That constant value and steady payment is looking pretty good right now!

I'm not a fan of annuities because many are not sold properly to the right folks and the fees are super high. However, for some there is a place in your retirement portfolio for an annuity. 

I will also add this. My husband and I met (via a telephone call) with our adviser and he pointed out that we should  look at our pensions and Social Security like an annuity because they are - guaranteed income. 

So if you have a pension and quality for Social Security you may not need an annuity. 

Read: This investment guarantees monthly checks for the rest of your life. But there’s a downside.

 

younger than I am, actually. His small business is kaput for the duration since the market that usually sets up in the hospital is closed (no surprise). However, he has always worked customer service for a local (but with national on-line presence) garden supply business. So in December he was spending his time on the phone helping people get their amaryllis to bloom for Christmas. Now he is answering e-mails from home about spring gardening issues. They are three weeks behind and working as many hours as they can. It looks like the key to gig/small business/contractor income security is diversity, plus a solid dose of luck.

This is a testimony. I'm a big believer in developing multiple streams of income. Your young uncle proves the point. 

Great! Thank you, Michelle!

You're welcome. Just be sure to double check everything with your retirement plan administrator. BECAUSE, no shade, but the Trump administration keeps changes things - constantly. They said Social Security recipients who don't normally file a tax return would have to do so to get their stimulus check. A few days later Treasury changed course.

Treasury still have to put out a lot of guidance so no telling what may change. 

What recommendations do you have when businesses offer former employees health insurance thru COBRA which can cost as much as or more than a mortgage/rent?

I just talked to a friend who has to figure out her health care options once COBRA ends. 

If you can afford CORBA it's a way to hold on to your insurance a little while longer. But as you point out it can be super expensive. I would suggest you definitely look at plans and cost in the healthcare exchange. And, if you've lost enough income you may qualify for Medicaid. 

Do what you have to do.

Read: Insurance marketplaces offer help with coronavirus job cuts

 

I asked you a few weeks about how to determine how much money I should hold onto, and how much I could donate in these uncertain times. I did the calculations and all my savings pots are fully funded (good no matter what the situation). In addition, thanks to the CARES act, it turns out I will be paid no matter what happens, so I've started donating as much as I can to to charities who are helping people who aren't as lucky as I am. I'm buying gift cards at local stores, overtipping when we get carry out, and doing whatever I can to help the businesses I would otherwise be going to. This is definitely a time where those of us who have the resources should be helping those in need.

To whom much is given, much is required. 

Thank you on behalf of all those who I know appreciate your generosity. 

In fact, we have been ordering take-out a bit more to help local restaurants. And, over tipping too. 

Brings be back to this column that stirred up so much debate: Poor service? You still have to tip 20 percent, no matter what.

And this follow up: Tipping on a sliding scale. People have a lot of opinions about it.

 

 

I have to admit, I am anxious. I've been calm so far; we are some of the lucky ones, have always lived on less than one income and banked the rest, and we both still have jobs. We've lived through bad times before -- lost jobs in the first tech crash, moved across several states, took a big loss on a house, etc. -- and so we are as prepared for this as anyone can be. But within the past two weeks I saw my company go from having its best year ever to suddenly wondering if we'll even have any business in a couple of months (yes, we've applied for one of the forgivable loans, but even if we get it, that buys us two months), and my own work has gone to almost nothing. It is hard to watch a career that I've built for over 25 years just evaporate so quickly, and hard to worry whether it will ever come back (or if I even have the energy anymore to do what it takes to get it there!). But all I can do is thank God that I've always been frugal, appreciate that we *are* financially secure (even if my lizard brain is telling me to panic!), and make myself continue to spend money on the local restaurants and business who are struggling even more than I am. And counterintuitively, the less tightly I cling to that dollar, and the more of it I "give" by supporting my friends and neighbors who are struggling even more, the less anxious I am about my own future. We will get through this.

A grateful heart is the key to a less anxious mind. 

Thank you for sharing. 

She/her, Ohio - I stayed the course, followed all the rules, kept up to make sure I got the service credit I was supposed to, and my student loans were forgiven this week through the PSLF program! Do not give up if you are in public service!

Wonderful news. Congrats!

I'm a paid employee at my church. With church not being able to assemble in person, the giving has decreased significantly. I don't want to put an extra financial burden on the church. I was thinking about having them let me go so I can file for unemployment. What do you think about that?

For now, wait and see how long they can carry you. Then if they need to furlough you, you'll still have plenty of weeks for unemployment. Besides with the wait times it could take weeks or a month before you can get your claim in for unemployment. 

VA/he/him/his. Hi, Michelle! Like most (all?) colleges, our daughter's college closed the dorms and went entirely online. The college is going to refund half of the room and board charges for the semester. When we paid for the semester, we wrote a check to the college and were then reimbursed from the 529 plan we have for our daughter. My question is, how is the return of money treated from a tax perspective? Will it be taxable? Penalized? What if we send 100% of the amount of the refund back to the 529 plan? Thank you! Love the column and the chat.

Hi, I've reached out to the financial company that runs Maryland's 529 plan. I don't have the answer now but will look into this because I don't know for sure. Ask me again next week or most likely I'll do a column about this. 

We are both still working and getting paid, so we are continuing to pay my SO's student loans -- we only have a few years' worth of payments left to go anyway so are trying to capitalize on the 0% interest -- but we've cut almost out all of our discretionary spending just because we're not going out and shopping, going to the movies, etc. We are trying to use that plus the money we'd otherwise be putting towards childcare (daycare center is currently closed) to build up savings as we both have jobs that could be impacted with a 1-2 year delay. We were already saving to buy a new car next year (mine is 19 years old and has no A/C anymore, and we just learned that brakes & tires are going to need to be replaced relatively soon), so if we are lucky enough to escape this with our jobs and salaries intact, we'll just put those extra savings towards the car instead!

I like your plan. 

I collect Social Security and also have other income, and I file tax returns. I haven't given the IRS my direct deposit information, but SS has it. Will I receive a paper check based on my tax return, or an electronic deposit based on my SS account?

I'm honestly not sure. Things are so fluid with the stimulus payment option. The IRS could use your 2018 return and mail a check or it could send the money direct deposit based on your Social Security 1099. I suspect is will be the latter. 

Read: Social Security recipients who don’t usually file tax returns will automatically get $1,200 payments, Treasury says in reversal

 

Him/his from Austin, Tx I am very fortunate to be a 401k millionaire. Still! When my $1200 comes, I will probably give it to the local food bank or another non profit. Right now between my Social Security, military disability and money from income funds, I am not having to tap into my 401k money--for many years. At least it looked like that a short month ago. What does concern me a little is that with federal funds rate at 0%, I will receive much less monthly income from my mutual funds. I bought these funds specifically to generate income for my retirement. So even though I subscribe to the Michelle Singletary School of Financial Thought, these times do make it difficult on all of us. But I am good so I can help others.

I'm so glad you can help too! 

The full COBRA payment is the employer's premium rate plus the employee's premium rate (as of the date they left office) plus a small (2%) administration fee. So please be aware that the increased cost of insurance under COBRA is basically what the businesses are paying for health insurance for each employee!

True. But this doesn't really help people afford COBRA. And it's why we need a better health care system where people don't lose affordable care when they lose their jobs. 

I've kicked off the process of doing a refinance of my mortgage with my bank. The rates are really low; I'd be taking off over a percent off my rate that is already historically pretty low. I'd be shifting from 5 years into a 30 year to a 15 year... so saving 10 years too. And I can afford the increase in monthly payments (~$500/month). So, running the numbers I save about $80K over the course of the loan... But that's not really comparing apples to apples. If I accelerate payments on my current loan so the monthly payment is the same amount, I save $59K and close it in a bit over 18 years. $21K is nothing to sneeze at, but it sure is a let down from $80k. Also I struggle to choose between that savings and the flexibility to cut back on that payment if it's needed. My job is pretty secure and I'm a lucky one who is 'essential' and can work from home just fine. But there's a lot of uncertainty in this world. Plus there's the unknown chance I might need to/want to move, which could negate any savings. I don't have a locked in rate yet, so a lot of this is pretty nebulous at this point. And the bank is slammed with applications, so turnaround is very slow. But, do you have any suggestions on how to balance these fuzzy criteria?

You worked just the numbers I would have told you to do. 

At this point you walk though them again and just make the best decision you can. I like the idea of cutting down to 15. So, what you could do is just go into super saver mode just in case you have a disruption in your income. OR, do what my husband and I are doing. Even on the 15, we are making extra principal payments every month  to get it done in 8 years. 

Michelle, I read your response and the linked column. The decision is not as black/white as it seems. First of all, I do not have a pension, only SS and a small military disability. Second, the annuity that I purchased will pay out any of the original principal to my children should I die before I collect that amount. Annuities are complex and there are many that do not pay out the total original principal--unless you get that special rider. So I maintain there is a place for an annuity in a well thought out portfolio.

We are in violent agreement. 

I didn't include bank info with this year's return because I sold property and don't expect a refund. Plus, I've changed banks since last year. I did send my CPA the info once the emergency payments were approved but don't know if that's too late. Do you know if they're looking at anything that's not in their system since last year?

It's not too late. The IRS is working on helping people get direct deposit information into the system. So check back with your  CPA. 

Before you do that, see if your church has applied for the Paycheck Protection Program. If they have, the government will turn the loan into a grant if they maintain employment levels. So if you let them fire you, it could cost them more than if they keep you.

Good point since religious organizations are covered under the Cares Act. 

and all of it is sending care packages to my elderly parents. But what am I going to do? I don't want my dad going from store to store in NJ trying to find toilet paper. They now have toilet paper, Clorox wipes, mom's favorite disinfecting spray, and hand sanitizer Over three packages - total postage over $50. Fortunately, I'm not out of work and I can afford it. Also, I live alone, and while it is a risk for me to go out to get them supplies, I'm not risking other family members. But I don't know how families whose members are all in industries that aren't working manage. It must be devastating.

It is very devastating. So folks provide help when you can to people you know and don't know. 

Thank you for joining me today. Really good questions and comments. Please be careful out there. 

See you next week. 

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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