Beyond job losses, Americans face many types of coronavirus financial fallout. The impact will linger

It's difficult to imagine that anyone has been financially untouched by the COVID-19 pandemic and economy-closing efforts to contain it. Job losses and income cuts are an obvious example, but many people will be hurt in other ways, and the impact could linger for years.

Some Americans, for example, will see an erosion in their credit scores, affecting their ability to borrow on good terms, while others could fall further behind in retirement preparedness. Income-tax perils and other dangers also lurk.

Struggling to make ends meet

Woman looking at bills and receipts on floor.Paying bills
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With a spike in the nation's jobless rate, many Americans now find themselves pinched by lower incomes. Some individuals weren't able to build an emergency fund even when times were good. "People who were living paycheck to paycheck do not have the financial cushion to absorb a shock of this magnitude," McKinsey & Co. said in a report.

Even before the pandemic hit, about 40% of Americans reported that they couldn't cover an unexpected $400 expense without borrowing or selling assets, McKinsey noted, citing a widely quoted Federal Reserve study. The COVID-19 outbreak has made money issues more worrisome for people in this group.

Many unemployed individuals have become dependent on stimulus checks and expanded jobless benefits — two programs that seem likely to be extended, with details still pending.

Losing ground on retirement

It is never appropriate to leave assets to a minor. If they do inherit property, including a retirement plan, their share will be placed in a conservatorship and given to them at 18.
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For a while, it looked like millions of investors and their 401(k) retirement accounts would get wiped out by the stock-market plunge triggered by the sudden coronavirus recession and economy-shutting measures to contain it. That doesn't appear to be the case anymore, with the market inching up to near its former highs. But many people still will lose ground in retirement planning.

Individuals who lost jobs were forced to take temporary furloughs or had their 401(k) matching funds cut will have fewer contribution dollars flowing into their retirement accounts. Worse, some investors have tapped their accounts for loans or permanent withdrawals, removing money that could have bounced back with the stock market.

Then there's the lure of claiming Social Security benefits as soon as possible, for anyone who has reached age 62. People who face job disruptions might be forced into this predicament. But claiming Social Security early comes at a cost, as monthly benefits rise over time for people who can afford to wait (up to age 70).

Even before the virus hit, half of all American households were at risk of falling short in retirement savings, said the Center for Retirement Research at Boston College in a recent report. Many people now "face a larger savings gap," with retirement at-risk households jumping to 55% from 50% before.

Less obvious than stock-market volatility, lower interest rates also pose a danger. At today's depressed yield levels, retirees and other savers will find it difficult just to keep pace with inflation.

Facing an uncertain tax situation

One silver lining to all of these disruptions is that many people could face a lower burden when it comes time to file federal and state income tax returns early next year. To the extent you suffered a job loss or reduced hours, for example, your taxable income for 2020 could be considerably less than it was for 2019.

Look for excess cash by reviewing interest listed on Schedule B of form 1040. Too much cash could be a sign you invest too conservatively.
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Just be aware that unemployment benefits are taxable, so plan for a tax bill later if you were thrown out of work and didn't have enough money withheld. Another danger awaits anyone who permanently withdrew money from 401(k) plans or traditional Individual Retirement Accounts — or those who can't repay a 401(k) loan. In general, this money is taxable, and you might face a 10% penalty if you pulled it out before age 59 1/2.

Then there's the Internal Revenue Service, which was tasked with issuing stimulus checks during the middle of tax-return filing season — just as its own offices were closing to help slow the spread of the virus. The resulting delays in processing returns and issuing refunds caused hardships for some people.

This episode should have you rethinking the wisdom of over-withholding taxes in hopes of getting a big refund quickly if you're counting on the money to help make ends meet.

Dealing with credit-report problems

As more people struggle with their finances, problems have shown up as credit-report demerits and lower credit scores.

LendEDU analyzed the volume of complaints fielded by the Consumer Financial Protection Bureau from March 13 to July 17. Complaints surged during that period, with gripes about credit scores and reports accounting for more than half the total.

Besides more people having trouble making payments, the spike in complaints points to a communication breakdown among consumers, lenders, and the three credit bureaus.

"Many financial institutions were flexible with borrowers and agreed to things like a reduced minimum payment or even a deferment period," noted Mike Brown, who wrote the LendEDU report. "However, it appears that many of these agreements were never really confirmed or finalized."

In some cases, credit-card companies reduced available borrowing limits for people who reported payment difficulties, resulting in a hit to their credit scores (which drop when more of a person's remaining credit has been utilized). In other cases, lenders or credit bureaus added erroneous information to consumer files.

All of which underscores the wisdom of checking your credit reports occasionally — you can do so for free at annualcreditreport.com — and alerting the bureaus if you spot errors. Services such as CreditWise that provide near-instant monitoring of scores also can be helpful, Brown said.

Coping with more stress

The coronavirus financial fallout appears to have contributed to greater anxiety. Americans polled recently by Charles Schwab rated their financial stress at an average 52.5 on a scale of 0 to 100 (where increased stress equates to higher scores), up from 45.9 in January. A lot of people expect their money worries to remain elevated even after the outbreak subsides.

Many Americans also might be thinking a bit differently about money in the wake of the pandemic. Respondents in the Schwab survey say it now takes fewer assets than before to be comfortable — an average $655,000 in net worth in the June survey compared to $934,000 in January. True wealthy status starts at around $2 million in net worth, respondents now say, down from around $2.6 million in January.

The report didn't explain why people have scaled back their measures of affluence, but a lot of Americans likely have lowered their expectations and aspirations.

Top Trump administration officials and lawmakers cautioned on Sunday that a deal over a new relief package to help people and businesses weather the coronavirus crisis remained elusive even as the debate over the details of the aid was set to take center stage in the coming week.

A meeting on Saturday in the Capitol Hill suite of Speaker Nancy Pelosi had been the most productive discussion in recent days, officials said, but they remain divided on a number of issues, including how to revive lapsed unemployment benefits for tens of millions of Americans and how broad any deal should be.

“We still have a long ways to go,” Mark Meadows, the White House chief of staff, who is negotiating on behalf of the administration, said on CBS’s “Face the Nation.” “I’m not optimistic that there will be a solution in the very near term.”

He continued to push for Democrats to agree to a stand-alone measure that would restore the weekly federal jobless benefits, which expired on Friday, as a way to continue providing relief.

But Ms. Pelosi, who is expected to again meet with administration officials on Monday, reiterated that she would reject a so-called skinny bill in favor of a sweeping package that includes a national health strategy to counter the spread of the virus and extend the full $600-a-week unemployment benefit.

She charged that Mr. Meadows and Steven Mnuchin, the Treasury secretary, remained reluctant to commit to a strategic health plan or to address the needs of American families.

“We have to defeat the virus, and that’s one of the contentious issues that we have to deal with yet,” Ms. Pelosi said on ABC’s “This Week.”

“We will be close to an agreement when we have an agreement,” she added.

Lawmakers have already approved spending nearly $3 trillion to address the public health crisis and economic collapse caused by the pandemic, but the two parties remain bitterly divided over the scope and cost of another relief package. Democrats, who remain publicly united behind the $3 trillion stimulus measure the House approved in May, contend that another significant infusion of cash is necessary.

But at least 20 Senate Republicans are unlikely to support any additional spending, party leaders have acknowledged, in part because of concerns over the level of spending and its effect on the national debt. Under a $1 trillion plan Republicans unveiled on Monday — a narrower proposal than the Democrats’ plan — a number of provisions, including the $600 weekly federal unemployment benefit, would be severely curtailed.

“We have to balance — there’s obviously a need to support workers, to support the economy, people who through no fault of their own are shut down because of this terrible disease,” Mr. Mnuchin said on ABC’s “This Week,” responding to criticism that Republicans took too long to introduce a proposal. “On the other hand, we have to be careful about not piling on enormous amounts of debt for future generations.”