Tag: Knowledge @ Wharton

What’s Ahead in the Second Year of COVID-19?

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/whats-ahead-second-year-covid-19/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2021-03-09

Excerpt:

Last summer, I saw a dramatic expansion of Federal Reserve liquidity, government support, and the money supply. I said then, ‘This liquidity is going to go into the stock market, and then it’s going to go into the economy once people feel comfortable with beginning their normal activities again’ — and that is exactly what is happening.

I think this year is going to be a great year for the economy, a much bigger expansion than a lot of people believe. I think it’s also going to be a year of inflation. Not dramatic inflation, but a lot more than what we have been used to — 3%, 4%, perhaps even 5%. This is going to be good for the stock market because I do not think that the Federal Reserve is going to tighten credit into 2022, maybe not into 2023. We’re going to keep low short-term interest rates and a hot economy, so inflation will begin to increase, and the stock market will be pushed ahead because corporate profits are going to be very strong.

The loser is going to be the bondholder because interest rates on the long-term bond are going to rise. We’re going to see the 10-year bond rise to 2% by the end of the year, maybe even 3% by the end of 2022.

Publication Date: 8 March 2021

Publication Site: Knowledge @ Wharton

Why Early 401(k) Withdrawals Are a Bad Idea

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/why-early-401k-withdrawals-are-a-bad-idea/

Excerpt:

Wharton Business Daily: What are your thoughts on the move by Congress to allow people to be able to dip into their 401(k) accounts? You are not a fan of that idea in general.

Olivia Mitchell: That’s true. This got started in March 2020, when the CARES Act was passed by Congress, allowing people who had 401(k) accounts and who were younger than age 59.5 to access up to $100,000 from their retirement accounts without paying the 10% penalty. Congress permitted this in the throes of COVID and then they allowed the income taxes on those withdrawals to be spread over three years unless the money was repaid to the account. That option ended in December 2020.

Congress passed a new bill in December that did not extend penalty-free access to everyone, but it did permit people who experienced federally declared disasters, aside from COVID, to withdraw some of their 401(k) money. So, there are still eligible people who, in 2021, can withdraw up to $100,000 from their retirement accounts without penalties. Again, they can spread it over three years for tax purposes. In general, this is not a good idea.

Author(s): Olivia S. Mitchell

Publication Date: 23 February 2021

Publication Site: Knowledge @ Wharton