Answering Your Questions About Personal Finance And The Pandemic

Stan Bunger
July 16, 2020 - 2:27 pm

    As we continue to navigate these unprecedented times, KCBS Radio is getting the answers to your questions about the coronavirus pandemic. Every morning at 9:20 a.m. Monday-Friday we're doing an "Ask An Expert" segment with a focus on a different aspect of this situation each day.

    Today we're looking at your finances with CBS News senior business analyst Jill Schlesinger.

    Any big picture take away from you at this point now? All these weeks in, we've got another round of unemployment filing numbers this morning, suggesting a million plus Americans a week are still finding themselves out of work and they're not all going back and how people are navigating that - have you got an overall takeaway from all this?

    I think that the good news is that claims are certainly well lower than they were at the peak, which was the end of March, beginning of April. That's not saying much though, because 1.3 million more people filing for unemployment benefits 16, 17, 18 weeks later is still a lot. And maybe more instructive is to look at the broader impact of this. And that is that right now, there are 32 million Americans who are collecting some form of unemployment assistance, either through their states or through the federal government's pandemic emergency and unemployment assistance plans. And I was trying to think 32 million, it's a huge number. So I went back and I said, where was it a year ago? How many people were collecting unemployment then, during the good times? 1.6 million. So what we have seen is just an enormous jump and the impact is going to be long lasting.

    And of course, I think that the biggest question that I get when I do my daily podcast is, well, if things are so grim and the economy is beginning and starting and stopping, why is it that the stock market is rising? And, you know, I got a good answer to that. I spoke to a big investment guy this morning and he said, you know, it's so weird to think about it, but really investors are looking well beyond this year, even next year. They're looking three, four or five years down the line and they see that there are going to be some big winners - companies - from this period. I know that sounds crass when people are suffering, but you know, most investment advisors and most people who are looking for the long term, they're not looking for the moral compass on this one.

    It also sounds weird to hear you say, people are looking long term. Usually we're discussing people's willingness to look no farther than the next quarterly earnings report.

    Well, you know, I think there is a jitteriness to this. But think of it this way: even if you were, let's say, a pension fund, right? You're looking well into the future and you get nervous about the gyrations, for sure. But even if that's the case, I mean, we do have a Federal Reserve that's pretty accommodative right now at zero. The Fed is going to do everything it can to keep the economy afloat. I think that there is a belief that we are going to get some form of additional assistance from Washington, D.C. I don't know what form that takes, I don't know if investors are going to be wildly disappointed. Again, when I talk to a lot of economists, they'll say, well, the investment community got it wrong for January and February, realized the errors of their ways, killed stocks in March. And then we sort of slowly came back. So it's not like the investment markets are always right.

    And Jill, did you say 1.6 million was sort of the average total number of people in the nation unemployed going back?

    That was the number of people collecting unemployment benefits a year ago.

    And I just looked at California this morning, right now in California we have 2.9 million on unemployment and another one and a half million getting the pandemic unemployment so we're at around four and a half. That's a stunning number and that's just California.

    It's frightening.

    It does put it in perspective. Let's get to the questions, which have been sent in to askus@kcbsradio.com. Let's start with this one: I know the IRS is way behind on processing returns and stimulus checks. When can I expect to receive my tax refund if I filed in early March? Also eligible for stimulus money, but haven't gotten that either.

    I just really, really want to hug this person because I know how much this is going to sound like the worst response. The check is in the mail. The IRS basically shut down around the end of February, March. Paper returns basically haven't been opened yet, forget about processed. So anyone who filed a paper return going back as far as February, may not actually see a refund anytime soon. Now, you'll get your refund and here's some kind of a little glimmer of good news from the IRS if you could imagine such a thing: if you are due a refund and it is from earlier in the year, I think the first quarter of this year, the IRS will give you 5% interest on your refund amount. And it's going down to 3% in the second quarter, but still, they're going to at least pay you interest because they're sitting on those returns for so long. So it's calming.

    I've gotten a couple of variations of this next question: what do you think is the likelihood of a second stimulus check, and some sort of extension of the $600 federal weekly unemployment assistance program? And if so, July, August, or when?

    Yeah. I would love to see that sooner rather than later, but since everyone is wondering just exactly what Congress is going to do, we don't know this, there have been different ideas floated. So yes, stimulus checks, that would be a little bit less generous on the income levels because what we now know is that the financial fallout from the pandemic disproportionately has hurt people who make $40,000 a year or less in addition to young people, women and people of color. So those are the folks who've been most impacted. So there is some thought that maybe another stimulus check could be coming and it could be for folks who make less than a certain amount of money and that amount might be you know, $50,000, it might be $75,000. We don't know yet.

    There's also been some consternation around this extra $600 a week unemployment benefit from the federal government, which is due to expire at the end of this month. Now there's a really weird glitch in this also, because it says July 31st, but most states pay through either Saturday or Sunday, which means that extra $600 check will end either on July 25th or July 26th. Without that unemployment assistance, most Americans would be leaning back on their state plans and the average state benefit is something like 370 bucks a month. So obviously we'd like to see something else done, but you know, there's been some pushback that people were making more on unemployment than they were working, so maybe it wouldn't be as generous. And there's also been some talk about something called a return to work bonus, which would pay people who make under a certain amount of money who come back into the labor force. Of course, the problem with that is if you can't get a job, you're still unemployed and you still need help.

    We set aside some money in an FSA dependent care account to cover my daughter's summer camp costs. She will not attend this year due to COVID-19. Are there any indications that people who have set aside flexible spending account money will be able to get a refund?

    Well, they probably won't get a refund, but you're going to figure out a way to spend it. You're gonna end up getting like 12 pairs of glasses or something, I don't know. But you know, when you do your flexible spending for your health care expenses, I presume that there could be some accommodation for that. It's not high on the priority list of things that need to be addressed right now in Washington. But that would have to come out of ERISA guidelines, meaning the employer plans that are provided out there.

    And that kinda goes to this question: my company lets us put aside money for transit benefits and I use that to top up my Clipper card account - that's our regional transit card here in the Bay Area. Now working from home, no transit, no need for the money. Any idea if I can get it back?

    I don't know if he can get it back, but can you pay it forward? You're going to go back to using transit, can you buy a few of those cards and just put more money on there? That could be kind of an interesting future benefit. I imagine that employers are going to have to make some accommodations around this. I got another interesting question that I thought was kind of like the opposite side of this, which is: hey, I've paid a bunch of money to set up my home office now that I have to work from home. Do I get to deduct that? And that's been a big question. The answer is no, not really. Because in the tax law that passed in 2017, you don't really get to do non-reimbursed business expenses anymore. That's off the table unless you're self employed or a gig worker. So there are some people who are going to their companies and saying, "Hey, is there any way you can reimburse me for it?" So that may be something to keep in mind, especially if you keep track of the money you've spent, because if there's like a federal national emergency, companies are allowed to provide assistance to you without any tax implication for them or for you. So there may be some reimbursement, we'll have to see.

    And just in a general sense, a lot of these employee benefits we just talked about - flexible spending, we talked about the transit benefit - are these run by the employer? People get confused as to who has their money and what the rules around the money are. Do the employers make the rules? Does the federal government make the rules? Some of both?

    Yeah, a little bit of both. So the federal government will set the guideline, but each company has its own plan and they have to abide by the federal guidelines, but that's the same thing with a retirement account, right? So the federal government will say, you can put up to this much money aside, $19,500, right? But then the plan itself can do things like make it available to have an in-service withdrawal, or you're allowed to roll over money while you're still working there or you're allowed to do a super-sized Roth contribution. And so there are things that the plan itself can do. The best thing for an employee to do is to talk to your HR department and they'll give you the rules for your specific plan.

    My wife and I have been discussing the wisdom of taking a loan from my 401k account. I know the CARES Act made some changes in rules regarding withdrawals. We're thinking more of a loan instead of withdrawal. Can you give us some thoughts on the wisdom of this?

    Oh, I got a lot of wisdom in me, man. So there are two things that the federal government did, and I'm not thrilled about either of them. I understand why, but I am - so, constitutionally, my DNA says, "oh God, it really should be a break the glass scenario to take money out of a retirement account after you've put it in." However, through the CARES Act, there are two different aspects of this as it pertains to retirement accounts. So for loans, your employer has to allow loans from the plan. So there's a case where the government says you can do a loan, but your plan has to allow it. So if you're an affected individual, meaning you're going to have to sort of swear an oath that coronavirus has impacted you and your family, you can take a loan up to $100,000 and it's the lesser of $100,000 or 100% of your loan balance. Now that's double what it usually is. So it's usually 50, you can take up to 100. And the thing about the loans is that usually you have to pay this quarterly over five years. And this is something that, you know, you can pay this money back. So there's that, you can borrow more money.

    Why would you rather do a distribution than a loan? Well, right now through the CARES Act, there's no longer a 10% early distribution penalty. So it may be better for you to actually say, let me take a distribution, I'll have to pay a tax. The tax could be spread evenly over three years and you could actually pay the money back if you wanted to. So it may give you more of an incentive to pay the money back. But it also may give you a little bit more flexibility, which is like, you take the money out, you have it, you don't have to pay the 10% penalty with a loan if you get fired or you lose your job, eventually. All that money is going to be counted as a distribution.

    Coronavirus depriving me of VITA doing my taxes - I think this is the voluntary income tax group - at the library for the past five years, every year. Made a mess of my paper trying to do my own. After I submitted them, found additional errors, failed to enclose 1099's. Should I try to get more forms, fix my errors, enclose the needed 1099's and send them and the additional tax due, or wait to hear from the IRS?

    Send, whatever you think is due. Do not wait for the IRS. Cause once you wait, that's when you start to incur the wrath of the very overworked people who are just coming back to work and, you know, you could be subject to penalties and fees. And the reality is that the IRS is quite forgiving if you're like, "uh oh, I made a mistake. Here's my extra stuff." They're not as forgiving if you go dark on them. So do try to make the estimate of what you think you owe them in terms of forms, files, and look, you can always amend a return. I think it's 1040-X. Is that scary that I know what form that is?

    I'm afraid it is scary, but that's your work, the dark side of things (laughs). Okay next one: the changes in unemployment benefits both out of the extra $600 a week, and this pandemic unemployment assistance, the extended eligibility for self-employed and gig workers. This questioner wants to know, even if this extra $600 goes away, will the extended eligibility for standard benefits continue?

    It's supposed to continue. That's supposed to continue. So the pandemic unemployment assistance, I think that's what was sort of like the big goof early on, was that everyone realized, "uh oh, we got a ton of people out of work who are gig workers, self-employed workers." So I think that stays alive. And I think the bigger issue really is that, you know, you asked me a big picture question before and part of the idea of what Congress does next also has to do with what Congress provides in terms of relief to states and municipalities, right? So we can't imagine - the budget of the state of California looks like hell right now, right? And the fear among many labor economists is that if Congress doesn't act and send some more money to the states, that we see a second round of layoffs but it's among state and municipal workers. And that would be awful.

    How would you advise me, a person over 65 who just retired last fall in 2019? How, if at all, should I alter my investments in light of the pandemic?

    You know, first of all, if you retired last year, good for you. And hopefully you were able to run some numbers before you retired and you have what I would guess is a portfolio allocation and allocation among stocks and bonds and cash and real estate or commodities that fits your risk appetite as well as your needs. Now, the reality is, I hope you didn't touch it. Because there's no magic solution of understanding where the market's going to go next. Timing the market does not work. But if you stick to your game plan, I think that that does work. When I was getting flooded in my inbox with questions in March, I had a lot of people who were like, "I want to go to cash, I'm scared, I'm scared." And over and over again, I sounded like a broken record like, "please don't do that, that's timing the market." So that's one end of timing the market. The other end is where we are today, which is like, "oh my God, that NASDAQ's actually up 14, 15, 16% on the year, I want to get in." That's another aspect of timing the market. You just want to create a game plan that is forward-thinking and not mess around with it, whether times are good or bad.

    So the old allocation rules kind of still apply, in your estimation?

    Rules of thumb exist for a reason. I have a friend who's a shrink and she likes to say to her patients: WAIT. And the acronym stands for, Why Am I Talking? This is a great one, right? So I have now adapted that. And so before you make a trade, before you do something in your retirement account, think about WAIT and say, Why Am I Trading? And if it's just a reaction to what's going on in the moment, don't do it. Don't do it.

    The IRS processed my 2019 paper return, but based my stimulus payment on the previous year. I should have gotten the full amount: married, filing jointly. How do I get the missing amount? So they got some, but not all.

    They'll get it next year, basically. The IRS is going to catch up, right? And the IRS and the Treasury Department records will soon jive and people who shouldn't have gotten the stimulus and did, are going to end up having to give some of that back next year. And conversely, like this person, they'll get what they are owed.

    I fear there will be a foreclosure crisis when the eviction moratorium is lifted, which would precipitate a depression. Would you suggest everyone have sufficient cash on hand to withstand a bank meltdown?

    Do you know that like my favorite asset class of all times is cash and cash equivalents, because I'm such a wimp? So not for the reason that that person is suggesting, I'm not predicting a Great Depression. But what I do believe is that when you look at the standard advice that I would give on January 2nd - I actually went back to a blog post I wrote about having sufficient emergency reserve funds, six to 12 months of your living expenses in a cash or cash equivalent account, one to two years if you are already retired. And people roll their eyes and hate that advice when times are good. And then everybody asked me, how much cash should I have on hand when times are bad? It's the same amount of money. Now, the only reason I would keep more money in cash would be if I have two incomes that are really on the edge, meaning if you think you have a job right now, but you're both at risk in a two household income, maybe I'd keep more on hand.

    In terms of bank failures, I don't see bank failures. These banks have a lot of money and they are keeping a lot of money in reserves. Bank earnings are coming out this week and we've seen some good, some bad, some so-so, but like the big banking centers like Wells Fargo and Citi and Bank of America have huge loan reserves. So coming out of the financial crisis, the big lesson was that we need to have banks have more money, emergency reserves of their own. And the lesson for us was that, you know what let's remember what FDIC insurance is. It's insured accounts up to $250,000 that are FDIC institutions. And that's something that you can keep in mind if you have more than $250,000 in an account and your bank fails, you're only insured up to 250. So if you're really fearful of a bank failure, and you're really rich, you may want to have a couple of different accounts. Maybe it's some different banks. Maybe you want to have some in the money market and maybe just want to own a T-bill.

    This interview has been edited for clarity.