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Did you know that part of the recently passed The Coronavirus Aid, Relief, and Economic Security (CARES) Act lets you withdraw $100,000 from your retirement funds without incurring the 10% penalty normally applied for early withdrawal? For a typical family with two working adults, that’s up to $200,000 of funds the government is letting you tap into without being penalized.
The provision didn’t get much coverage in the media, and that’s why not everybody knows about it. Still, having access to this money right now must be very tempting for those who are in limbo because of the shutdown. Is withdrawing now worth it? What are the details?
Raiding Your Retirement Account Due to Coronavirus
Basically, you are allowed up to $100,000 in distributions from qualified retirement accounts for reasons due to coronavirus in 2020 and the IRS won’t levy the typical 10% early withdrawal penalty.
To further sweeten the deal, taxes based on the withdrawal can be spread out over three years to lessen the tax load for any particular year.
And as if the incentives aren’t enticing enough, you also get to contribute the amount you withdraw back into another eligible retirement plan within three years if you so choose. [ continue reading… ]
Imagine that you are shopping for a used car and see a nice one on the lot. After negotiating back and forth with the salesman, you manage to agree on a price that’s several thousand dollars less than the list price. I bet you would sign the title feeling like you got a great deal. Now imagine if the list price was a few thousand dollars lower to begin with, but the salesman refuses to negotiate.
You end up paying the same price, but the feelings you have about the purchase is probably quite a bit different.
This is one of the mental money traps you can fall into.
There are a few more, and this is a long read. So grab some coffee, and let’s get into five of these today and what you can do to avoid the pitfalls.
Mental Money Trap #1: Outsmarting the Anchor-Price Comparison Trap
The used car lot example is called price anchoring. By having a relatively high list price on used cars, customers will remember that price tag and decide whether they got a good deal or not based on that initial price.
The tendency to use the first piece of information we hear or see as our “anchor” for making subsequent spending decisions is called the anchor price comparison trap (some also refer to it as the relativity trap or focalism). This happens most frequently in categories that are new to us, where we have nothing to compare to the prices we encounter.
Whatever you choose to call this behavior, it’s a verifiable bias built into our mental wiring, and it can cost us a lot. The good news is that you can outsmart your own tendency to create pricing anchors with a few simple strategies. [ continue reading… ]
Being Frugal and saving money is generally always the preferred choice. Week after week, I write articles to help you figure out how to make every dollar travel a bit further so you can retire just that much earlier.
And it’s not just me either. If you keep up with all the articles circulating the web, you will definitely get the impression that saving money makes sense at all times, every time.
Yet, there were moments in my life when saving money wasn’t the right choice. I remember years ago when I was flying back to attend my grandfather’s funeral. Airline tickets were very expensive, as the event was so sudden and I had to leave on short notice.
That funeral fell on a Saturday too. I could’ve saved money if I left the night before but the chances of flight delays was just not worth the extra savings. Making the event was priceless, so unless the difference in airplane fares were so much that I couldn’t afford the cost, there was no way I would try to save money and risk missing the chance to see my grandfather one last time. [ continue reading… ]
I’d like to introduce you to Billy, the investment guru living inside my head. He always convinces me to buy and sell stocks at the perfect time, but he must be a billionaire since his call to action always cost me financially. I can’t blame him though, because he probably doesn’t need any more money and probably doesn’t care.
Whenever there’s a bull run in the markets, he tells me to plow more money into stocks. “Buy and hold, stay the course, the market always comes back so it’s always a good time to buy”, are just some of the catchphrases he’s been yelling at me during these years.
The advice worked well enough for a long time since the market climbed relentlessly, but then COVID-19 happened and stocks took a quick dive. And what does he do? At the depths of the market plunge in March, he had the guts to tell me to sell. It’s not just a casual nudge either. We are talking about not letting you sleep, screaming “sell, sell, sell” the whole time for days on end. [ continue reading… ]
The idea of being financially independent is something most of us dream of, but some of us are taking action to make this dream a reality. We believe that living below our means, maxing out our retirement accounts, paying off our debts, and saving consistently will allow us to achieve freedom. We will be free from money issues, free from our constant struggle at work, and free to work on what we are passionate about. [ continue reading… ]
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