Increasing Your Return on Life.®

Frank Talk - 3rd Quarter Newsletter (2020)

Published: 08/28/2020

Table of Contents


Written by: Frank Fantozzi

Happy summer, clients and friends!

We hope you’ve had a chance to catch up with family and friends, either in person or virtually over the summer months. I know it continues to be an unusual time for many, as the COVID-19 pandemic continues to impact businesses and communities throughout the country.

As we inch toward the close of summer, this has been one of the hottest on record—for both the weather and the stock market. As such, the first half of 2020 has proved to be a wild ride for investors and business owners. By early August, the benchmark S&P 500® Index had recouped much of its lost ground and we saw it move into positive territory for the year. In fact, August 13th marked 100 trading days since the March 23, 2020 low, and the S&P 500’s best 100-day rally ever, up more than 50%. Nonetheless, one of the most frequent questions we continue to receive is how can stocks be back near highs, while the economy isn’t anywhere close to previous levels of output? There are a number of reasons for this, as outlined below:*

  • The S&P 500 is more manufacturing driven, while Gross Domestic Product (GDP) is more services driven.The services economy was harder hit during the lockdowns and faces a tougher road back with social distancing than manufacturing.

  • The S&P 500 is also more investment driven rather than consumption driven.Capital investment has been supported by technology spending and has not been hit as hard as consumer spending during the pandemic. As a result, the S&P 500 has been more resilient to the pandemic. We also believe the value of tech-based intellectual property is better captured by the S&P 500 and its profits rather than the GDP calculation.

  • The S&P 500 is global, while GDP is domestic. Roughly 40% of the sales for the S&P 500 are derived overseas, while U.S. exports in the GDP calculation only make up 13% of U.S. GDP. The U.S. economy is a net importer, while the S&P 500 is a net exporter, which is why the S&P 500 prefers a weaker U.S. dollar. A weaker dollar helps make many U.S. companies’ goods cheaper overseas and enhances international profits, while a strong dollar is good for U.S. GDP because it lowers the cost of imports.

  • The S&P 500 likes higher oil, while GDP likes cheaper oil.Profits for the energy sector benefit from higher oil prices, but higher energy costs crimp consumer spending. The industrials sector also generally benefits from higher oil prices through capital spending by energy producers.

To learn more about what you can expect from the markets in the weeks and months ahead, and the impact the upcoming election may have, be sure to read our full Market & Economic Update.

We also want to remind you that our Brecksville office re-opened in early June for clients who would like to meet in person. For those who prefer to meet virtually, we continue to use Zoom for virtual meetings, and are always available via phone. Just let us know how you prefer to meet, and we’ll make it happen!

We have a lot of news to share since our last issue of Frank Talk, so we hope you’ll take a few minutes to read about the latest happenings at Planned Financial Services.

What’s in It for You

At-a-glance guide to your 3rd Quarter 2020 Frank Talk newsletter:

News & Events

  • Frank Fantozzi is Featured in and S. News & World Report
  • Team Member News
  • Upcoming Events
  • Complimentary Second Opinion Service
  • Visit our New Getting Frank Blog

Market & Economic Update

News & Events

Frank is Featured in

In July Frank Fantozi was interviewed for a feature article in The profile piece discusses how Frank and his experienced team help high net worth individuals and business owners plan for and pursue an ever-evolving array of wealth planning goals and challenges. Please click this link to access the article:  Why Cleveland's Planned Financial Services Urges Wealth Planning for Business Owners.

Frank Shares Insights in U.S. News & World Report

Frank Fantozzi was interviewed by U.S. News & World Report for his insights on consumer credit utilization in the article Should You Downgrade Your Credit Card? The article addresses the question of whether to cancel or downgrade a credit card you may not be using as much during the COVID-19 crisis. Frank advises against cancelling because it will affect your credit utilization ratio. "Credit utilization accounts for 30% of your credit score," he said. "If you downgrade, you don't impact credit utilization and you keep the same account history status." Click here to read the full article and learn more about protecting your credit

Team Member News

Please join us in welcoming Rebecca Dolar as executive assistant to Frank Fantozzi. In addition to providing executive and administrative support to Frank, Rebecca will play an integral role in maintaining our customer relationship management system, conducting market and industry research, and assisting with social media initiatives and prospect outreach, among other responsibilities. She brings extensive experience in coordinating, planning, and supporting daily operational, administrative, and marketing functions in the insurance, healthcare, and financial services industries. Prior to joining Planned Financial Services, Rebecca was the Director of Marketing and Events for R. Shea Brewing, LLC in Akron, Ohio.

Rebecca graduated from Kent State University in Kent, Ohio, where she received her Bachelor of Arts in Public Communication and Sociology in 2011.

In late May, Wealth Advisor, Daniel (Dan) Goldfarb, CFP®, ChFC®, CRPC®, accepted an opportunity outside of our firm to pursue his passion in the areas of human resources development and business operations. While we will miss Dan, we wish him well in this new pursuit.

As our team continues to grow and evolve, we want to assure you that serving your needs continues to be our top priority. Our team approach to helping you and your family protect and grow your wealth, as you pursue the Return on Life® you desire, continues to be one of the unique strengths of our firm. Our team structure enables us to seamlessly provide the high level of service and attention you desire from professionals who bring deep experience and a multidisciplined approach to serving your needs.

Mark Your Calendars for These Upcoming (Virtual) Events!

12th Annual Cleveland Economic Summit

Due to space restrictions governing the number of attendees at events, we will be holding our 12th Annual Cleveland Economic Summit via Zoom this fall. Watch for a “Save the Date” email in the weeks ahead. The email will provide information on the date and time as well as the speakers. We hope you will plan to join us for our first-ever virtual summit.

Smart Business Family Business and Longevity Conference – September 23, 2020

 Family Business ConferenceFor the fourth consecutive year, Planned Financial Services will sponsor the Smart Business Family Business and Longevity Conference, with Frank Fantozzi participating as a panelist. The conference will take place on September 23, 2020, from 9 - 11a.m. Since this year’s conference will be held virtually, it will be free to all attendees. Click here to learn more about the event or to register.

The Family Business Conference & Family Business Achievement Awards is an interactive workshop with leading industry experts that provides the type of actionable insight necessary to plan for a smooth transition of family businesses. This conference will also recognize non-family organizations who have reached at least 50 years in business and explain how they have evolved through the years. 

Plan to join us to hear from this year’s dynamic line up of panelists as they share real life examples of what separates success stories from failures. This networking breakfast and interactive workshop will offer perspectives from both industry experts and actual family business owners to address this and other issues facing both family-owned and non-family businesses every day. Congratulations to our client and 2020 Family Business Achievement Award Winner: E.F. Boyd & Son Funeral Home and Crematory.

Smart Business Smart Women Breakfast & Awards – October 9, 2020

Smart Women AwardsFor the fourth consecutive year, PFS will be sponsoring the Smart Business Smart Women Breakfast & Awards on October 9, 2020, from 7:30 – 10:30 a.m.  This year’s event will take place virtually and will be free to all attendees. To learn more  and to register, click here.

 Since 2005, the Smart Women Breakfast addresses issues facing women in the workplace. The conference also recognizes the achievements of leading businesswomen, inspiring male advocates, and effective women’s programs through the Smart Women Awards program. We hope you will join us for this year’s event.

Reminder…Our Complimentary Second Opinion Service is Available to Your Friends and Colleagues

In April 2020, we introduced a new service, available exclusively to your friends, family members and associates. Our complimentary Second Opinion Service provides the people you care about with an opportunity to benefit from the same expertise and guidance that you have come to expect as a valued client of Planned Financial Services.  

In many cases, a second opinion will simply provide confirmation, and the confidence that those you care about are on track to fulfill their values and achieve their goals with their current financial provider or strategy. However, if needed, we are happy to suggest ways in which we can help, including recommending another provider if we are not a good fit for their needs. Either way, following a Discovery Meeting and Investment Plan Meeting with our experienced team, they will receive a Total Client Profile and a Personalized Financial Assessment of their current situation. To learn more about the Planned Financial Services Second Opinion Service, click here to access or download a full description of this service and the benefits it offers to the people you care about most.

Don’t Forget to Visit our New Getting Frank Blog

If you haven’t already, be sure to visit our new Getting Frank Blog at and let us know what you think. You’ll find topical information and insights that inform your planning, including how individuals and businesses can benefit from the recent CARES Act legislation. Visit us weekly as we post new articles and opinions.  

Market & Economic Update

5 Earnings Season Takeaways

Corporate America delivered on expectations and then some during a second quarter earnings season that many are calling the biggest upside surprise ever. Below, we recap the results, share five key takeaways for investors, and discuss our near-term outlook for stocks with the S&P 500 Index near record highs.

Much better results than anticipated
Earnings blew away expectations that ended up being way too low. With 92% of S&P 500 Index companies having reported results, the average upside surprise has been 22%, which we believe is the highest ever recorded going back several decades. At 82%, the percentage of S&P 500 companies that beat earnings targets is the highest since FactSet began tracking that statistic in 2008. Earnings are still tracking to a significant 33% year-over-year decline, but that’s certainly better than the 45% decline reflected in analysts’ estimates when reporting season began (source: FactSet).

Why were estimates off by so much?
We think estimates were off because analysts may have been guessing in many cases because of the lack of guidance from companies’ management teams. Other reasons we think played a role include:

  • Analysts underestimated companies’ ability to cut costs.
  • Analysts were surprised by the U.S. economy’s ability to bounce back as states reopened.
  • Analysts underestimated the size and impact of fiscal and monetary stimulus.
  • S. dollar weakness provided an unexpected tailwind for multinationals’ profits
  • Companies that provided guidance had every reason to be conservative, given the uncertainty.

Results were good enough relative to expectations to prompt us to raise our 2020 S&P 500 earnings per share (EPS) estimated range to $125–$130 from $120–$125. Stocks are taking cues from earnings estimates in 2021 and beyond, based on currently elevated valuations, but a potentially higher base in 2020 may improve prospects for 2021 earnings.

Five takeaways
Our top five takeaways from second quarter results are:

  1. All of the earnings decline came from four sectors.The four sectors that have been among the hardest hit during the pandemic—consumer discretionary, energy, financials, and industrials—drove the entire earnings decline for the S&P 500. That means seven S&P 500 sectors were impressively around flat, collectively, in one of the worst quarters for the US economy in 100 years.

  2. Best pandemic performers were mostly on the growth side.The Russell 1000 Growth Index is tracking to a 4% year-over-year increase in earnings for the second quarter. Meanwhile earnings for the Russell 1000 Value Index are tracking down 40% year over year. The so-called “stay-at-home” stocks, whose leadership positions have strengthened during the pandemic, are mostly found in the growth indexes—big cap technology and internet stocks in particular. We continue to believe growth-style stocks are well positioned to maintain leadership over value style in the near term, despite signs of life from value recently.

  3. Surprisingly upbeat guidance offered. Estimates for future quarters have tended to fall as earnings were being reported in previous seasons. This quarter was a different story, with a 1.4% increase in the next 12 months’ S&P 500 earnings estimates since the second quarter ended, reflecting upbeat guidance from Corporate America. While that may not seem like much, and we still may not see positive earnings growth until early 2021, this encouraging development increases the chances that estimates for the third and fourth quarters may prove to be too low.

  4. Recent economic data bodes well for the outlook. The upside surprises and increased estimates during earnings season supported our decision to increase our 2020 estimates for S&P 500 profits. But that’s not the whole story. Recent strong economic data relative to expectations may increase the probability of more upside surprises. The Citi Economic Surprise Index—a measure of the frequency with which economic data beats consensus forecasts—is near its all-time high set in July and well above pre-pandemic highs (data back to 2003). Bloomberg’s version of that index is near a 20-year high. The July employment report, the latest weekly jobless claims numbers, and the Institute for Supply Management (ISM) manufacturing and services indexes are recent examples of economic reports that came in better than expected. 

  5. Don’t forget about the dollar. The nearly 5% drop in the U.S. Dollar Index so far in the third quarter, which boosts internationally sourced profits for U.S. multinationals, bodes well for the near-term earnings outlook.

A good problem to have
The S&P 500 has already eclipsed the high end of our 2020 year-end, fair-value target of 3,300, which raises the question of whether the target should be raised. We are not inclined to make that move right now, although we know that may signal some pessimism for stocks.

While 3,300 on the S&P 500 may look pessimistic at this point for a year-end S&P 500 fair-value target, we do not want to send a signal to investors to be more aggressive with equities in portfolios at this time for several reasons:

  • We think a pullback may be overdue.
  • The election could drive volatility.
  • The next leg of the economic recovery may get tougher.
  • US-China tensions are ratcheting higher, and
  • Stocks may be disappointed if lawmakers can’t agree on another stimulus package.

Also, we are valuing the stock market based on earnings 12 to 24 months out, so the strong earnings season this quarter doesn’t provide much impetus for us to revalue the S&P 500 higher.

If the S&P 500 breaks through to new highs, and perhaps we get more good news on COVID-19 therapeutics or vaccines, we may reconsider, but for now, we prefer to keep our target where it is. Looking a year out, we are more optimistic about stocks, and more pessimistic about bonds, so we are keeping our tactical overweight equities recommendation. A COVID-19 vaccine may arrive within that window.

Closing Remarks

As we move closer to the election, we will continue to monitor and adjust our portfolios as conditions change and keep you up to date on these and other developments. If you, or someone you know, has questions or concerns about your personal investment strategy or business finances, please don’t hesitate to share information about our complimentary Second Opinion Service and reach out to your experienced team of wealth advisors at 440.740.0130.

We are always honored to help our clients’ friends and business associates take greater control of their future with guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide.

Don’t forget to join or follow PFS on Twitter, LinkedIn, Facebook and YouTube.

We also invite you to like and follow Frank’s new Facebook business page and visit our new Getting Frank Blog

Real People. Real Answers. 

Health, Happiness, and Good Fortune,

Frank Fantozzi
President & Founder


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

S&P Energy Index: A market capitalization weighted index that tracks the performance of energy companies.

*Some research was provided by LPL Financial, LLC, August 2020.  PFS nor LPL make no representation as to its completeness or accuracy.

Planned Financial Services, LPL Financial,, U.S. News & World Report, and Smart Business magazine are all separate, unaffiliated entities.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

Make the most of estate and gift tax exemptions

Written by: Cynthia Yang

Legislation enacted in 2017 temporarily doubled the federal lifetime estate and gift tax exemption — from $5 million to $10 million, indexed for inflation — through 2025. Without further legislation, the exemption is scheduled to return to its previous level of $5 million, to be indexed for inflation, on January 1, 2026.

For affluent families, the temporary increase provides a window of opportunity to transfer substantial amounts of wealth tax-free. But even those with more modest fortunes should consider taking advantage of the exemption while it’s available.

Potential tax savings

For 2020, the inflation-indexed estate and gift tax exemption is $11.58 million. The following scenario shows how the increased exemption can potentially save millions of dollars in tax.

Anne, a single taxpayer, dies on January 1, 2026, with an estate valued at $15 million. Assuming the exemption amount has dropped to an inflation-adjusted $6 million and the top marginal estate tax rate is 40%, her estate’s tax liability is $3.6 million.

Suppose, instead, that Anne took advantage of the increased exemption and made $11 million in tax-free gifts in 2020. Assuming her estate is worth $4 million when she dies ($15 million – $11 million), her estate’s tax liability is only $1.6 million. By seizing the opportunity to make large gifts while the exemption was elevated, Anne avoids $2 million in estate taxes.

When considering the potential estate tax savings, keep in mind that gifting assets that you expect to appreciate in value, such as stock or real estate, may trigger future additional income taxes in the hands of your heirs. That’s because property transferred by gift generally retains your tax basis, while property transferred at death receives a “stepped-up basis” equal to its fair market value on the date of death. Therefore, you should weigh the expected estate tax savings against the potential income tax costs to the recipients should they sell the assets.

Tried-and-true strategies

Even if it seems like you’ll never come close to using up your gift and estate tax exemption, it still may pay to use tried-and-true estate planning strategies — such as making annual exclusion gifts and direct payments of tuition or medical expenses on behalf of your loved ones. The annual exclusion allows you to gift up to $15,000 per year (for 2020), tax-free, to any number of recipients, reducing the size of your estate without using any of your lifetime exemption.

Married couples who split gifts can transfer up to $30,000 per recipient. So, for example, a couple with three children and seven grandchildren can give away up to $300,000 per year. In addition, you can pay any amount of tuition or medical expenses on behalf of your children, grandchildren or others — without triggering gift taxes — so long as the payments go directly to the educational institution or health care provider.

What if you’re not in a position to make large gifts now but are concerned that the exemption will be drastically reduced in the future? Regular annual exclusion gifts and direct payments of tuition and medical expenses can provide a hedge against future tax law changes. These strategies may enable you to shelter substantial amounts of wealth from taxes while preserving your exemption.

Have a plan

Changes in the gift and estate tax exemption can have an enormous impact on the amount of wealth available to benefit your heirs. In recent years, some lawmakers have proposed reducing the exemption to $3.5 million, or even as low as $1 million. It’s critical to consider a potential reduction in the exemption after 2025 (with no further legislation), as well as the risk that it may be reduced even further.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Now more than ever, life insurance is worth considering

Written by: Amy Valentine

The COVID-19 pandemic has changed the way people think about many things — including the fragility of life. If you don’t already have a will and estate plan, you may have been thinking more about putting them in place. Same with life insurance. Here are some of the issues you need to consider.

Do you need it?

If you have others depending on you financially, your top priority is likely ensuring they’ll continue to be provided for after you’re gone. Life insurance can help achieve this goal. These policies are appealing because relatively small payments now can produce a proportionately much larger payout at death. But the fact that the return on the investment generally isn’t realized until death can also be a downside, depending on your financial situation and goals.

Not everyone needs life insurance, though. If you’re single and have no dependents, it may be less important or even unnecessary. Perhaps you’ll want just enough coverage so that your mortgage can be paid off and your home can pass unencumbered to your heirs.

High-net-worth individuals also may not need life insurance. But even if you have enough to provide for dependents, a life insurance policy could serve other purposes in your estate plan. For example, it can provide liquidity to pay estate taxes without having to sell assets that you want to keep in the family. Or, if you have a family business, it can be used to equalize inheritances for children who aren’t involved in the business without giving equal business interests to everyone.

How much coverage?

If you determine that you need life insurance, the next step is calculating how much. Is the policy intended to support your family? Tally the costs that would need to be covered, such as housing and transportation, child care, and education — and for how long. Don’t forget about funeral costs, which can easily top $7,000. Gravesite expenses typically add thousands more to this number. In addition, you may need coverage equal to the amount of your outstanding mortgage balance.

Estate tax liability is another factor. If you’re a business owner buying insurance to equalize inheritances, estimate the value of business interests going to each child active in your business. Then purchase enough coverage to provide equal inheritances to the inactive children.

Finally, identify income available from Social Security, investments, retirement savings, employer insurance policies and other sources. Insurance can help bridge gaps between expenses to be covered and available income.

Term or perm?

Life insurance policies generally fall into two broad categories:

  1. Term. As the name suggests, these policies are effective for a specific period of time. If you die during the policy’s term, it pays out to the beneficiaries you’ve named. If you don’t die during the term, it doesn’t pay out. Term coverage typically is much less expensive than permanent, at least while you’re relatively young and healthy. Renewal typically becomes more expensive as you get older or your health changes.
  1. Permanent. These policies last until you die — so long as you’ve continued paying premiums. Most permanent policies build up a cash value that you may be able to borrow against. Over time, the cash value also may reduce premium size.

Because premiums typically are higher for permanent insurance, consider whether the extra cost is worth the benefits. It might not be if, for example, you don’t need much life insurance after your children are grown. On the other hand, a permanent policy may make sense if you’re concerned that you could become uninsurable or if you’re providing for special-needs children.

Life is unpredictable

As we’ve sadly learned from the COVID-19 pandemic, life is unpredictable. Consider looking into life insurance while it’s on your mind.

Giving to charity is a little sweeter in 2020

Written by: Brian Klecan

The Coronavirus Aid, Relief, and Economic Security (CARES) Act has temporarily created a new $300 charitable deduction for nonitemizers but also gives larger donors an opportunity to save more tax on their gifts. Here’s what charitable donors need to know.

Limit suspended

The CARES Act relaxes the income-based deduction limit on cash gifts made to public charities in 2020. Ordinarily, such deductions are limited to 60% of adjusted gross income (AGI), and excess contributions may be carried forward up to five years to provide a tax benefit in those years. This year, the deduction limit is 100% of AGI.

This change may present an opportunity for people who use their IRAs to make large charitable donations, particularly if they were at least 70½ years old by December 31, 2019. To make larger tax-free distributions for charitable gifts, you might take a taxable withdrawal from your IRA and donate the cash to a qualified public charity. Because you’re entitled to deduct up to 100% of your AGI, your charitable deduction completely offsets the income generated by the IRA withdrawal.

Note, however, that the CARES Act suspends required minimum distributions (RMDs) for 2020. So if the reason you typically make donations from your IRA is to eliminate taxes on your RMDs, there’s less incentive to make such donations now. In fact, this year you may want to withdraw only what you need to cover expenses or make charitable contributions.

Donation considerations

Before you make a financial gift, keep in mind that:

  • To qualify for the tax benefits discussed, donations must be made in cash to a public charity, not to a donor advised fund, supporting organization or private foundation; and
  • Donating appreciated securities to charity is always the best strategy because it allows you to avoid taxes on any gains. But the deduction limit for appreciated stock donations is generally only 30% of AGI. If you want to make a large stock contribution in 2020, you can augment it with more cash contributions than you normally could.

As in previous years, donating stock that has declined in value is never a good strategy because you lose the ability to write off the loss.

They need you

These tax incentives are designed to encourage Americans to support struggling charities.  It’s possible more tax legislation with additional charitable giving breaks could be signed into law. Contact your tax advisor for the latest information.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Approaching retirement? How to deal with market volatility

Written by: Frank Fantozzi

The COVID-19 pandemic has wreaked havoc on financial markets and the general economy. If you’re approaching retirement, or are already retired, you may be worried about the effects of market volatility on your retirement portfolio. Here’s how to adjust your investments — and, possibly, some of your expectations.

Asset allocation review

For longer-term goals, many investors put their money in stocks, which tend to generate higher returns over 10 or 20 years but are more vulnerable to short-term market fluctuations. As your time horizon shortens, it’s generally advisable to shift asset allocations toward less volatile vehicles, such as bonds and cash investments.

So, it’s important to review your asset allocation periodically. You’ll want to ensure that your portfolio remains aligned with your circumstances. Also, the balance of assets in your portfolio tends to change over time depending on the relative performance of different types of investments. Suppose, for example, that your target allocation is 60% stocks and 40% bonds and cash. After a period of strong stock market growth, you may find that the allocation has shifted to 70% stocks and 30% bonds and cash.

If your asset allocation no longer reflects your investment strategy, consider rebalancing your portfolio. But approach rebalancing with caution: If it would require you to sell investments that have declined in value (as many have in 2020), realizing those losses will deprive you of the opportunity to participate in future returns. Also, asset allocation and rebalancing don’t guarantee a profit or ensure against losses.

Managing multiple time horizons

Younger people typically view their time horizon as a single point in time: their expected retirement date. But as you enter retirement, it becomes necessary to manage several time horizons at once. Depending on your age, retirement could last 30 years or more. This means your investments need to fund a combination of short-term, intermediate-term and long-term goals.

Shortly before reaching retirement, consider allocating a certain percentage of holdings to cash and short-term bonds. This can help ensure that you have money to pay for living expenses over the next couple of years, even if the market is volatile. For intermediate-term goals, it usually makes sense to keep a mix of cash, bonds and stocks to strike an appropriate balance between risk and potential rewards. For long-term retirement goals, more aggressive investments may be appropriate.

If you’re not ready

What if you’re nearing or entering retirement during a market downturn and you haven’t laid a financial foundation to support your retirement needs? You’ll need to take quick action, but don’t panic. Start by reviewing your emergency funds or other income resources to see if you can meet short-term needs without selling assets at depressed prices. If you have sufficient resources, you might want to buy stock or other volatile investments at lower prices to help build long-term funds.

Other potential strategies for riding out a downturn include reducing your spending — at least temporarily — putting off retirement for a few years or finding part-time work. If you can avoid selling more volatile investments, you’ll be in a better position to rebalance your portfolio when the market recovers.

Protect the nest

As you approach retirement during a period of market volatility, it’s critical to protect your nest egg. How you do this, however, depends on your personal situation. So be sure to consult with advisors to design a plan that makes sense for you.


Sidebar: CARES Act provides retirement relief

The Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March contains several provisions affecting retirement plans. One provision was designed to ease the impact of market volatility on tax-advantaged retirement accounts: It allows you to skip required minimum distributions (RMDs) from qualified retirement plans and IRAs for 2020. This is important because 2020 RMDs are calculated based on account values as of December 31, 2019.

Say, for example, that your account’s value has declined substantially since the end of 2019. Taking an RMD in 2020 could deplete a larger percentage of your current balance than would normally be required and force you to sell assets at depressed values rather than leaving investments in place to potentially regain their value. Plus, you’d generally have to pay tax on the distribution.

Another provision of the CARES Act can waive the early withdrawal penalty tax that normally applies to taxpayers under age 59½. It’s available for 2020 distributions up to $100,000 for taxpayers who suffer financial hardship as a direct result of the COVID-19 pandemic. This relief may be available if you, a spouse or dependent was diagnosed with COVID-19, or if you otherwise suffered certain adverse financial consequences from it. You may also avoid paying tax on qualifying distributions by recontributing the amount within three years (without regard to otherwise applicable contribution limits). Amounts that aren’t recontributed are taxable, but you can spread the tax liability over a three-year period.

Finally, the act allows retirement plans to increase maximum loan amounts in 2020 to the lesser of $100,000 or 100% of the vested account balance. Ordinarily, loans are limited to the lesser of $50,000 or 50% of the vested balance.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Want help? Let's talk.