Surviving in the time of Corona

I write this at a time of great turmoil in the markets and where the bottom of the stock market drop is unknown. Will the market have an L shaped recovery, or a V shaped one where stocks and equities will quickly rebound? Will small businesses like restaurants and service industries, plus small stores ever recover to where they were just 2-3 months ago? I personally think a U-shaped recovery is more likely, but I am not an economist. Here is what I believe plus what I do know.

The key is to not panic and to not make any hasty decisions. When the world and the economy feel out of control the best first step is to take stock of our immediate situation and then, take action with the items that we can control.

You will see other lists elsewhere of how to survive in our new daily reality. Here is my list of things to review and actions to take, or not take, to survive our new financial landscape.

Review your Planning:

Where is your money? Now is a good time to look at your money and take stock of what you have, what is easily accessible and what is less liquid. It may be hard to look at money that is on the market, and it is important to look without making rash decisions. The market is in flux right now, and those losses are not realized until you pull your money out.

Essential expenses- everyone has expenses that are a given. These are the costs of things we need to live. Now would be a very good time to review those costs and see if there are savings to be had during this time. With interest rates so low, it may be a good time to refinance your mortgage. With travel at a minimum, you might change your mobile plan to one that doesn’t include all of the bells and whistles, now that you don’t need them. Everyone’s personal expenses are different, but the idea is to review what you have. You may be able to save money just by looking. If you or someone you know is struggling to pay for some of the basics, please know that there are protections in place for most of the major essentials and many companies may be willing to work with you during this epidemic.

Discretionary Spending- it’s time to review where your money is going. Since this epidemic and social distancing has started, you are bound to spend money differently than you did only a few months ago. Now would be a good time to review your banks and credit card statements and look at where your money is going. You may be paying for monthly subscriptions to things you don’t use any more or remember having. You can also make sure, between discretionary and essential spending, that you are paying for the lifestyle you are now living and not the one you lived before.

Are these purchases necessary now? What about necessary purchases such as cars and transportation once recovery begins, including the end of a car lease that could be coming in 60-90 days? Since dealerships are not selling many new cars except for those who have unlimited funds, still have high incomes, or assets they can easily liquidate, you may be able to buy out your leased car and the end of its term for a significant reduction, and that will save short and long run money versus just getting a new lease. Dealerships are making special offers, just as auto insurers are lowering rates.

What about children’s educational and college costs? Things may never be the same in a time of campus shutdown and working online at home. The Cares Act last week dropped the interest rate on federal student loans to 0% and many lenders automatically put the loans into forbearance, all until September 30, 2020. This would be a welcome reprieve for people struggling to pay those loans at this time. For those who do still have a steady income, it is an ideal time to pay down those loans as much as they can because all of the payment would go to paying down the principal.

Estate Plan- Do you have one? If the answer is no, then if nothing else this epidemic should be a good example of why having one is so important. If you do, it is time to read through your wills, trusts and estate planning. Do these plans still make sense? Are these objectives and goals still up to date and are they realistic?

Insurance- your insurance is one piece of your financial puzzle and was designed with the rest of your financial landscape in mind. Now that it has changed it is important to review your life and disability insurance, to see if there is enough protection to solve family and personal goals, plus retirement income needs especially if you have a reduction in asset values. You may find that assets previously allocated to create personal and family security, are now insufficient and you need more protection…at a time when no one wants to spend any money. There are various options for increasing your family’s protection, in all budget ranges and depending on your current planning may be a simple matter of paperwork. The advice here is to contact your insurance advisor and let them know your concerns including a budget. Be prepared for them to review your policies and planning as well. An experienced agent may have a better grasp of the products and nontraditional payment options.

Alternatives to the market:

Annuities-Are they a good bond alternative as a savings strategy for the future? There are many types to consider like indexed strategies and fixed returns for set periods of time or income annuities.

Permanent life insurance that has tax free cash value growth may be an effective way to build values for the future, like bonds which now have limited yields, and limited payment plans can be very effective since you know when payments cease, what the guaranteed growth will be and what dividends or indexing could create in the short or long run.

What about your parents? Much of this article has focused on a person and their immediate household, but most of my clients have aging parents, grandparents or older relatives that they take care of in some fashion. I myself have a 93-year-old mother who now has dementia. My father before me was also in the financial and insurance business and made sure my mother had long term care insurance and retirement assets. She lives in Saint Louis, where I grew up and her care costs are ~$18,000 a month. Her long-term care insurance pays ~$11,000 of that cost. The other $7,000 a month or so is coming from her retirement investments. But her investments are now worth a lot less than they were only a few months ago.

Our family’s story is one that all too many people are experiencing right now. Our family has been lucky so far, but for many, when the investment values decline, the adult children could be asked to shoulder the burden of their parents’ extended care- either financially or physically. That creates a different burden. And nobody wants to talk about that issue.

My siblings and I are in our mid to late 60s, and for adult children like us, paying for or providing our parent’s care would affect or even delay our own retirement plans.

For us, the time for planning for our parents may have passed, but it may be time to think about how to prevent our story from being our children’s story. Even if money is tight now, it is still a good idea to start researching the topic of longevity planning. Quarantined with the ones you love might be a good time to discuss these issues with them and seek some free advice from advisors who are also home, self-isolating.

In the military they talk about a good versus a perfect plan, and it is said that “a good plan, violently executed now is better than a perfect plan next week.”

The issue I see that we all must deal with is the “health care and related topics.” I believe that:

1- We must actively make certain that we are cautious with our expenditures, especially on purchases that can wait or are not immediately necessary.

2- We need to review our prior planning and determine gaps that must be solved today versus sometime in the future. We cannot and should not procrastinate from this review.

3- We need to make sure that if sick or injured, we have enough “income protection”. That could be a willingness to further liquidate already diminished assets, or, use some cash assets to purchase more disability income protection. That is especially true or critical if our group disability benefit insurance covers only base income not base plus bonuses or commissions (which are typically excluded), and further, where benefit payments could even be taxable as ordinary income.

4- We need to consider what our longevity strategy will be today while we are still healthy. We should consider whether or not we should buy some amount of long-term care insurance. Doing this planning now will provide personal and family protection security, without the need for potential asset liquidation, especially since good caregivers are in very short supply and expensive. And, in my opinion, we don’t want to leave that caregiving burden to children or other family members if we can help it.

There is no perfect plan, but with financial uncertainty when recovery comes and what it will look like, revisiting your planning and taking action now will be wise financial planning, and will allow for wise and well thought out decisions.

This is no time to procrastinate!