FAQs from Your COVID-19 Financial Survival Kit Webcast

You may have joined our recent webcast titled Your Covid-19 Financial Survival Kit. We had a lot of questions come through during the sessions so we want to share the commonly asked ones, with their answers! Our facilitator, Bruce Young, CFP, has provided written answers below.

Take a look at the different topic areas, and for more resources see the banner on the home page of your Financial Finesse Hub

401 (k)

Q) Should I keep funding my 401 (k)?

A) Yes! you are buying low and you don’t want to miss out on matching funds if it’s available to you.

Q) Should we lower the amount we are contributing to our 401 (k) for the current time period?

A) Unless you need to redirect funds to beef up your emergency fund, you should avoid lowering your 401 (k) contribution because you are now buying low and can take advantage of dollar-cost averaging.

Q) Is this a good time to increase my 401 (k) payroll deduction?

A) Yes, if you have an emergency fund already then this is a great opportunity to be investing more in your 401 (k) while the market is low.

Q) I am within 11 months of retirement – should more go to fixed income (money market, CD’s) or leave a portion to stocks, etc.?

A) Ideally, you will want to have up to 3 years’ worth of living expenses in a “safe” investment such as money market CD’s, etc. Typically, a conservative portfolio based on your comfort level of risk. An example might be 20 to 35% stocks, 65 to 80% fixed income.

Q) I am retiring in less than a year, should I continue to put money in my 401 (k)?

A) Yes, especially if you have a company match in your 401 (k).

Q) What if you have a 457? Should I borrow from a 457 before my 401 (k)?

A) While a retirement loan is generally a last resort, the benefit of taking a loan from your 457 is IF you had to leave / separate from service you may not be subject to the 10% penalty (if under age 59 ½)

Q) I have two years until retirement – what is my risk tolerance.

A) Typically, a conservative portfolio based on your comfort level of risk. An example might be 20 to 35% stocks, 65 to 80% fixed income.

Q) If I have a 401 (k) loan should I convert it to a distribution payout? I’m 65.

A) Ideally, no as you will be making it a taxable event.

Market

Q) Is there any benefit to withdrawing large sums of money out of bank accounts during these times ie how do you calm a panicked senior?

A) No. That being said, having a set amount of cash on hand ($ 200 – $ 1,000) for emergency cash transactions is a good practice.

Q) How do you communicate to friends and family members that they shouldn’t be liquidating at this point?

A) First off, it’s maintaining a calmness when talking with them. Going over what their time frame is (when they need the money), recognizing that the investment markets do go down and historically they have rebounded, and finally re-assess their risk tolerance, ie do they need to re-balance their portfolio.

Q) When is the market going to go back up?

A) I wish I knew! Seriously, no one knows that answer, hence sticking to the sound fundamentals of investing and (ideally) dollar-cost averaging into the market.

Q) Once the market stops going down, do you recommend investing in the stock market?

A) Since we do not know when that inflection point will occur, you want to maintain your investment strategy through both the ups and downs of the market.

Q) Is now a good time to purchase stocks?

A) Yes, if you have a long-term investment timeline this could be an excellent time to purchase stocks!

College

Q) Should I keep saving for my child’s education? Or keep it for emergencies?

A) Saving for a child’s education should be behind (1) saving for an emergency (2) saving for your retirement. Also, if there is any high-interest rate debt, that should be prioritized over children’s education.

Q) I have a high school senior going off to college in the fall. I’m concerned about the loss we have recently taken on the money we have set aside for college. Will the market rise soon enough, or should we sell and take a loss?

A) We do not know when the market will rebound. Prior to selling at a loss, consider alternative means, ie student loans that could be paid off once the market does return.

Emergency Fund

Q) What is the correct amount of money for an emergency fund?

A) Start with a goal of $ 1,000 working towards 3 – 6 months’ worth of NECESSARY expenses

Qis it a good idea to hide away money in our home if the market does not recover? Is this what you mean about emergency money?

A) Having emergency cash (think a range of $ 200 – $ 1,000) at home is advisable. Your emergency SAVINGS should be in a safe type of investment (think savings account, CDs, money market accounts).

Buying a Home

Q) I just bought a house this month at what seems to have been the peak of the housing market. Should I be concerned? Or is this a long-term, ride-it-out scenario?

A) Unless you bought the house with the expectation of “flipping” it, a home purchase is a long-term investment

Q) I’m saving up a down payment for a house, now that the stock market is plummeting, I want to invest some money in the market while prices are low, how should I prioritize this?

A) It depends on which goal is MOST important to you. If buying a home is, then saving in a savings/money market account is the preferred way to save. If buying a home is a “nice to do, but can wait” then investing in the market can be beneficial when prices are low.

Q) Hi, we have been preparing to buy a house in an area, that is always high demand and expensive and it will stay that way during the crisis too. Should we buy or wait if something good comes up?

A) With mortgage rates at historical lows, it may still be a great time to buy a home, but you’ll want to consider your job stability.

Q) I am currently in a transition, should I purchase a home or continue to lease/rent?

A) Mortgage rates are at historical lows, so you should consider job stability and how long you plan to stay in the area before making the decision.

Q) If possible, would this be a good time to refinance a mortgage?

A) Yes! Mortgage rates are at historical lows.

Student Loan

Q) How should you think about federal student loans now that interest rates are waived?

A) If you can continue to make your normal payment, this is a wonderful opportunity to pay down the balance more quickly. If you are having issues making the payment, contact your student loan servicer for a forbearance program.

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