If you were like most seniors, your retirement account looked great when New Year’s 2020 rolled around. It is only May, but that seems like a lifetime ago as the as global pandemic brought on by COVID-19, economic losses from the lockdowns, and March’s market selloff have left many seniors feeling more concerned about their financial wellbeing.
With that in mind, here are some ideas on how seniors can protect their assets during the COVID crisis. Keep in mind; there is no one size fits all solution to asset protection and these ideas are meant to help you review your current situation and decide on a course of action that will keep you, and your family, safe during these uncertain times.
Do Not Lose the Forest for the Trees
While the equity markets had a bad first quarter, they have rebounded in recent weeks, and as of late-May, the NASDAQ had turned positive for the year, and the S&P 500 had paired most of its losses. Things could change, especially if the pandemic gets worse, but for the time being, the market carnage has not been as bad as predicted in March.
The result of the volatility has been that the markets are basically in the same place they were 12-months ago. Therefore, having a sense of perspective is so important as panicking can lead to making rash decisions that could end up costing you more money in the long run.
What does this mean? For those who have a longer time horizon with their investments, the best course of action might be to do nothing. For those who need to protect the liquidity of their assets, they might want to consider rebalancing their portfolio. This could mean selling some stocks to limit the impact of any future selloffs – especially as the likelihood of a second wave in the fall remains elevated.
Remember that any moves you make should be thought through not only to ascertain how this will support your short and long-term goals but also to look at the tax implications as well.
For many Americans, their most valuable asset is their home. However, the COVID crisis has the potential to wreak havoc on the housing market. This is already evident, and the number of homeowners behind on the mortgages or in forbearance has skyrocketed in recent months.
The potential implication being that the housing market across the country might be on the verge of a dramatic shift not seen since when then the housing bubble burst in 2008. This could mean that the value of your home might fall by 10 percent or more – making it harder for older Americans to get as money for their homes in a sale.
As such, it might be time to look at some proactive steps which could help to reduce your mortgage liability while locking your ability to access the equity you have built up in your home.
While home equity loans come to mine, the downside to these notes is they need to be repaid almost as soon as they are taken out. As such, a home equity loan has a net negative impact on your cash flow, when the economic outlook is uncertain.
Another option for older Americans might be something called a reverse mortgage. While these loans have been around for years, many financial planners eschewed from recommending them. However, that changed in the last decade, especially as the federal government adjusted some of these rules tied to these loans.
As such, these loans could be used to effectively hit the pause button on your mortgage payment for as long as you remain in your home while giving you access to a large portion of the equity you have built up over time. This is an option that you will want to consider before the housing market in your area begins to reprice.
If you are not sure how a reverse mortgage could help, then you might want to check out this HECM loan calculator to get a better idea of the potential financial impact.
Be on the Lookout for Financial Relief
This is especially true if you own a business as the combination of the lockdowns and the cascading unemployment has clouded the economic outlook for the rest of the year. The economic fallout has gotten so bad that it is not just restaurants that are in trouble as several large law firms have also announced layoffs.
As such, you should be on the lookout for various financial relief measures. This could include disaster relief loans from the SBA, the Paycheck Protection Program (PPP), which was meant to help companies continue to pay their employees, or state relief programs that target small and midsized businesses.
If you want to protect your assets during this crisis, the key is not to panic, be proactive, and be on the lookout for any relief programs which can help.