When it comes to the coronavirus health crisis, it is easy to feel helpless or at a loss of control, but one thing you may be able to control right now is what you do with your money during the pandemic.
“The two things I say the most are to be flexible and focus on what you can control,” said Rhian Horgan, a former JP Morgan Investment Advisor and CEO of financial planning platform Kindur.
“It is tempting to spend a lot of time looking at the stock market, but none of us can control the stock market, so I go back to…what are the things you can try to control?”
One of the things Americans have found themselves able to control recently is how they spend the stimulus check of either $1,200 or $2,400 that they received from the government. Horgan explained to Ladders how people can decide if they should spend, save, or invest their COVID-19 stimulus check.
Who should spend the stimulus check?
“For the vast majority of Americans, my advice is to keep it liquid,” Horgan said. “The whole reason that stimulus check was put in place is that there was a real concern that many consumers were not going to have the funds to pay their rent, buy food, or buy gas for transportation.”
Many Americans will need to keep their check right in their direct deposit accounts and use it to weather the storm of this crisis, and that is perfectly fine.
“The key thing is using it for essentials…now is not the time to be booking that next vacation or to be buying a new vehicle, but thinking about things that we need to have in our day to days,” Horgan said.
For those that need to spend their check, you might be wondering if more help will be coming before the coronavirus pandemic ends in the U.S.
“I get asked a lot, ‘Is this check going to be enough?’ Or, ‘Is this stimulus package enough?’ Only time will tell, unfortunately,” Horgan said. “I think about the stimulus check as a step in the right direction, but I think what we are going to see is a tremendous amount of pain in the economy that we are going to need both public and private partnership together to get us out of. So my guess is that this is the first but not the end of the support people are going to need from the government to get America back on its feet.”
Who should save their stimulus check?
Even if you do not have to immediately pay rent or buy food with your stimulus check, it might be a good idea to keep the cash in your bank account right now.
Ladders recently spoke with Suze Orman, who recommended that both employed and unemployed people hold onto every penny possible from this check or their unemployment checks.
Orman recommends only paying off the minimum amount for your credit cards, not paying extra each month towards your mortgage, and asking the companies that you pay monthly (mortgage companies, credit card companies, insurance companies, utility companies, student loan company) if they can postpone payments for as long as possible.
Who should invest the stimulus check?
“For the group of consumers that already has that emergency fund…putting money in a Roth IRA can be really great,” Horgan said.
For those that are in their 20s or 30s, this is a great move because your savings will compound over time.
“Being able to have that money compound for 20 or 30 years, all of a sudden that stimulus check of $1,200 becomes $5,000 by time you retire,” Horgan said.
What should people near retirement do with their stimulus check?
“If you are five years away from retirement or in that transition zone, there’s a lot of concern about how to weather the storm,” Horgan said.
Horgan is encouraging people that are closer to retirement to think about what this stimulus check looks like in the context of their broader retirement plan.
“Some of the things we see people doing to help them weather the storm right now, particularly those that are close to retirement, is to really start to think about part-time income as an additional way to bide themselves some time as they retire,” Horgan said.
Horgan also recommends reducing your discretionary spending, and many may have already done that due to the nature of the stay-at-home orders.
For those nearing retirement, Horgan recommends having flexibility around delaying retirement, and particularly thinking about delaying Social Security benefits.
“Every year you delay social security your benefit increases by 8% and in a world where we are earning basically zero on bank account balances right now, that 8% accrual is really, really valuable,” Horgan said.
Overall, if you are nearing retirement, the most important aspect of deciding what to do with this stimulus check is to take a step back, take a look at your plan, understand what the plan is and how it may have changed given the economic effects of the coronavirus pandemic.
What should Social Security recipients do with their stimulus checks?
Social Security recipients who didn’t file a tax return for 2018 or 2019 do not have to file a new tax return in order to receive their stimulus check.
“It is a moment in time where the value of having direct deposit is really clear as people who have direct deposit are receiving both social security faster and their stimulus check faster,” Horgan said. “So if you have the ability to transition from paper checks to electronic deposits, this is the moment in time where having access to your cash faster is really valuable.”
Horgan recommends the concept of flexibility to Social Security recipients as well as those who are near retirement.
“There’s a lot of different decisions you can make so you have to be flexible about when your retirement date is, be flexible about when you go from 100% full-time to part-time,”
Horgan wants people to know that having that flexibility will allow you to weather this storm.
“If you are very focused on only taking social security at 62, it’s really hard when the market falls 20% to have all your other factors adjust,” Horgan said. “Be flexible and have a plan A, and then be willing to adjust and have that plan B.”