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Financial Planning > Tax Planning

Americans’ Financial Satisfaction Takes Biggest Drop Since 2009

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Americans’ robust feeling of financial well-being at the end of 2019 has soured as the coronavirus pandemic has strained the U.S. economy and millions of people have lost their jobs, according to the first-quarter Personal Financial Satisfaction Index, published Thursday by the American Institute of CPAs.

The PFSi dropped 8.3 points from the fourth quarter to 32.9, the largest quarterly decline the index has experienced since the 2009 fourth quarter.

The PFSi is calculated every quarter as the Personal Financial Pleasure Index minus the Personal Financial Pain Index, with positive readings indicating that Americans are feeling more financial pleasure than pain.

In the first quarter, the Pleasure Index dropped to 69.5 from 74.9 in the previous quarter, while the Pain Index rose to 36.6 from 34.7.

The AICPA noted that the first quarter calculation used economic data that was largely measured before the pandemic got its hooks into the U.S. economy. It said the 22 million Americans who have filed for unemployment benefits since mid-March and the growing number of people who are struggling to pay bills and meet other expenses will be reflected in the second-quarter PFSi.

The Labor Department reported Thursday initial jobless claims of 4.4 million in the week ended April 18, bringing the five-week total during the pandemic to 26.5 million.

According to the AICPA report, the most notable factor driving the quarter-over-quarter PFSi decline was the PFS 750 Market sub-index, an AICPA proprietary stock index that comprises the 750 biggest companies trading on the U.S. market.

In comparison with its fourth-quarter record high, the Market sub-index fell 21 points, wiping out all its gains from the past three years.

The next largest contributor to the PFSi decline was the Inflation sub-index, which rose 34 points from the previous quarter. An increase in inflation adds to financial pain, driving down the PFSi overall.

The report noted that inflation is the most volatile factor contributing to the PFSi and with absolute levels so low, small changes result in large percent gains. For the current reading, this factor relied on data released in late March that reflected the Federal Reserve’s February level before it cut rates to near zero.

Tips From CPAs

“We’re hearing from CPA financial planners across the country that now more than ever their clients are relying on their guidance to navigate these extraordinary times,” Andrea Millar, director of financial planning at the Association of International Certified Professional Accountants, said in a statement.

The AICPA personal financial planning section asked its members to offer Americans tips to navigate the coronavirus financial upheaval. Following are some of their comments.

Tax deadline delays mean more time to make 2019 retirement contributions.

“The COVID-19 pandemic is first and foremost a public health crisis, and people’s safety and wellbeing should be their primary concern,” Mark Astrinos said. “If you are able to pay your essential bills, and you have enough savings to sustain you through a potential job loss, consider contributing to your retirement.

“The extension of the federal tax filing and payment deadline to July 15, 2020 also extends the amount of time you have to make contributions to IRAs and HSAs for 2019.”

Do your best to hold steady.

“In times of high stress, it can be easy to make money moves to help you today that you end up regretting down the road,” Dave Stolz said. “When the market experiences a significant pullback, it is important to resist the temptation to make a short-term move that could impact the long-term goals of your financial plan.

“Instead, remain focused and stay the course with a financial plan that incorporates a risk tolerance you are comfortable with and a time horizon specific to your personal financial goals.”

Your portfolio may be in the red, but your tax planning can be in the black.

Knowing how to work with “coronavirus-fueled investment losses” can help cut your taxes, according to Michael Landsberg. “Review your investment portfolio to see what potential investments you can sell now to lock in the tax benefits. Even better, if you’d like to maintain exposure to that asset class, you can buy a similar investment and eventually buy back into that original investment after 30 days.

“Be sure to wait at least 30 days in order to avoid ‘wash sale’ rules which are in place to prevent taxpayers from deducting loses from trading substantially similar securities within 30 days of each other. This strategy is known as tax loss harvesting and can help to lower your potential tax hit.”

It’s a perfect opportunity for wealth transfer strategies.

“When making gifts to family members, either directly or into a trust, the goal is for the asset to appreciate and remove the appreciation from the donor’s estate,” Lisa Featherngill said. “When transferring wealth, the market value of the property is considered the value of the gift.

“From a tax planning perspective, you want the value of a gift to be low when it is given. A depressed market provides lower gift value. The value of the gift is offset by the gift and estate tax exemption or it is subject to tax if the exemption is exhausted. As part of the Tax Cuts & Jobs Act, the exemption for gifts is temporarily doubled to $11.58 million, which makes now an even better time to consider this strategy.”


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