Just a few months ago, the idea of a “recovery rebate” would have been nonsensical. Fast forward to today and it’s part of our new reality. It’s easy to be overwhelmed by the nonstop flow of news and numbers. However, I’m confident that, together, we will get through this crisis.
The $2+ trillion CARES Act was designed to be part of what helps us do just that. Here, I wanted to spend a few moments discussing the recovery rebate provision of the law. As you’re probably aware, the rebates are on the way and will deliver $1,200 per person and $500 per eligible child to Americans across the country. For example, a couple with two children could receive a total of $3,400. These rebates are subject to income limitations and are totally phased out at $99,000 for an individual or $198,000 for a couple that files jointly based on your latest tax return.
As far as impact, the rebate seems like an additional tax refund. Over the last couple of years, the average refund to taxpayers has been around $3,000. How you deploy the money depends on your personal situation. Here are a few ideas for folks in different circumstances:
Single servicemember, dual-military couple or one income military family. It’s likely that from a financial perspective – if no other – it’s business as usual for you. Consider the additional influx of cash from the recovery rebate as an opportunity to build your emergency savings, pay down high-interest debt or even save for longer-term goals. Perhaps, a vacation after we kick this thing to the curb or an IRA contribution.
Military member plus wage-earning spouse. We are just starting to see the traumatic impact of the pandemic on U.S. employment. I’ve seen projections of 30+% unemployment across the country. When we overcome the virus, it’s likely we will see a quick recovery, but my thought would be for couples in this situation to plan for a potential job loss. That’s especially true if both your incomes are needed to meet your core expenses. In this scenario, consider setting aside your rebate in emergency savings. If you’re able to weather the employment storm, you can redeploy the money later. This is also a good time to work your budget and make the tough spending decisions that will allow you to be less dependent on both incomes.
Non-military individuals or couples. Remember, two-thirds of our economy is based on consumer spending. If we are doing, as I hope we all are, the right thing from a social-distancing standpoint, there are fewer opportunities to spend money. And increased unemployment numbers will further reduce spending. In that context, we are likely to see an economy that contracts significantly over the next couple quarters. So, here again, consider playing it safe and using the rebate to establish or bulk up your emergency savings.
With the Federal Reserve’s actions to reduce borrowing costs and maintain liquidity in our markets, fiscal actions like what the CARES Act delivers and our resiliency as a nation, we will get to a better place. In the meantime, prudently manage the resources at your disposal to get there with as little pain as possible. Check out this post for more tips on managing your economic stimulus check.
About the Blogger: JJ Montanaro is a Certified Financial Planner® professional and part of the Military Affairs team at USAA. He’s a graduate of the U.S. Military Academy and has over 20 years of financial planning experience.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED
FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
The information contained is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional advice before acting on any information you may have found in this article. This article in no way attempts to provide financial advice that relates to all personal circumstances.
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