The markets closed positive yesterday for the third historic day since 1933, in response to the unanimous Senate passage of the largest economic stimulus package in history, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The bill was passed by the House today, and President Trump has vowed to sign the measure the minute it hits his desk.
This is a huge bill, both in scope and in size; it provides total aid of about $2.2 trillion to jumpstart an economy that has been stalled by the COVID-19 pandemic. That’s a lot of zeroes, but there are also some big pluses in there for you, and I want to hit some of the most important highlights.
1. Checks for US residents.
This will benefit most Americans and provide some desperately needed financial relief in the short term. As long as you filed a tax return in 2018 or 2019 and have adjusted gross income below $75,000 ($150,000 for couples), you will receive a check for $1,200.00 ($2,400.00 if you are married) via direct deposit or snail mail. This money is aimed at helping with short-term cashflow due to the shutdown of businesses or if you were laid off or lost your job because of COVID-19. It’s a quick shot in the arm that will greatly benefit younger families with children, since those who qualify will also be eligible for another $500 per child. The Treasury is ramping up to start processing the payments within the next three weeks.
2. Expanded unemployment benefits for those laid off or furloughed due to mandatory business closures.
The CARES Act greatly expands unemployment insurance (UI) for workers, including a $600 per week increase in benefits for up to four months and federal funding of UI benefits provided to those not usually eligible for UI, such as the self-employed (solo or small business owners), including those who have been furloughed (still technically employed, but can’t work, including freelancers, Uber drivers, and other gig workers). Even if you were unemployed before the outbreak, you are still eligible to receive increased benefits. This will mean greater security for many small business owners who are the backbone of the American economy.
3. Emergency loans to state and local governments.
For my clients who are retired and those approaching retirement, the nearly $500 billion allocated by CARES to state and local governments helps to ensure that payments on municipal bonds (a significant asset class of investors’ portfolios) won’t be endangered. It also means that at a time when local governments are losing revenue because businesses are being shut down, the public services (electricity, water, etc.) that we all rely on can continue without being curtailed.
4. Help for small businesses.
I was talking with one of my clients who owns a small business a few days ago, and he was expressing how terrible he felt, having to lay off some of his employees. But he was thinking ahead and trying to conserve cash flow. Torn as to what to do, he asked my thoughts on financing strategies. I mentioned that the aid package in the CARES Act would provide loans to small business owners to help keep people on their payrolls (for at least four months), and that the loans could be forgiven. He immediately hung up the phone and put those employees back on the payroll. Small businesses like his will have access to $350 billion allocated to help them get through this crisis without closing their doors or laying off all their workers. They’ll also be able to receive a refundable tax credit of up to $5,000 per employee and deferment of payroll taxes—a huge load lifted off the people who do so much to keep Americans employed.
5. No RMDs for 2020.
One of my retired clients called to ask about the required minimum distribution (RMD) from her retirement account. “Because the market was up so much in 2019, my account really grew,” she said, “and my RMD was figured on my balance at year-end. But now I’m way down. Will I still have to take that same RMD distribution?” The answer, I’m happy to report, is NO! As part of the relief package, much like in 2008 and 2009, if you are currently taking RMDs from your IRAs or other retirement accounts, you will have the option to skip it in 2020. If you need to take your distribution, of course, you still can, but it’s great to have that flexibility under these extraordinary circumstances. Additionally, the CARES Act relaxes the rules on emergency withdrawals from retirement accounts if you are under 59 ½. Those who need to access money in a 401(k) or IRA to stay afloat during the crisis will not have to pay the 10% penalties on the withdrawal. However, taxes will still be due, so use this only as a last resort!
What all this means to you: As I said at the beginning, the passage of this legislation is a positive thing for the markets and for all Americans. The ultimate good news and what the market craves most is for the spread of the virus to be contained and eliminated. Until that happens, I want to encourage all of you to continue to do your part in mitigating the contagion by sequestering at home and practicing social distancing. From a financial perspective, this massive coordinated financial backstop from the federal government is an important step in the right direction to see America through COVID-19 and thriving again.
These, of course, are just some of the highlights from the CARES Act. If you would like more details, click here.
My final thought: As I speak with you, my clients, friends, and family, I am overwhelmed by the unity in our community, our state, and our country as we come together to help one another. In times of crisis, character is not created, it is revealed. And the core character traits being revealed in this COVID-19 crisis are love, service beyond self, and a courageous sense of calm that binds this country to the core and makes America truly the greatest country in the world!
Stay Diversified, Stay YOUR Course!
Stay Your Social Distance, Wash Your Hands!