Financial Planning During COVID-19

We’re only now coming to realistic grips with the COVID-19 pandemic and its effects. For the last year and a half, this deadly pandemic has upended our news, our plans, and our world. What once seemed so simple and straightforward has taken on new urgency and life all around us daily.

It almost goes without saying that our notions of personal finance, and our financial priorities, have shifted—dramatically, in some cases. We’re preparing for the worst while hoping for the best, and taking steps to make sure our careers and our families are safe and taken care of. If we didn’t think about this before the pandemic, the situation has certainly changed. We don’t have the same choices as we did before.

But just because our priorities have shifted doesn’t mean they have to catch us off guard. We can adjust our outlook and our strategies to better compensate for our changing world. The basics are security, adjustment, diligence, and carefully considered goals—all good traits we used before for our financial planning. We’ve just now shifted our targets, and changed the trajectory for our goals and our timelines.

Before anything else, we have to discuss health.

There’s no point in saving and careful financials if you’re neglecting your health or your estate and your will. While COVID-19, generally speaking, has a very good prognosis, the simple, sad truth is that nearly 700,000 Americans have died from this disease. Many thousands more have accrued tremendous medical expenses from hospitalization and medical care related to the virus. Millions have taken time off from work to quarantine, rest, and recover from their bout, generating more debts and costs. COVID can also leave lingering health effects that will cost us in the long run.

Considering our health insurance options can help us prepare to pay for possible COVID-related expenses. Many workplaces offer health insurance of different tiers and levels. Understanding the health insurance available is an onerous task, but one that we do well to pay attention to. Is it complicated? Yes, it can be. Be sure to explore the health insurance offered by your company, if applicable. Don’t just pick the cheapest one, or the most expensive just because it sounds fancier. Take an honest stock of what each offers, what your contribution will be, and what you’ll get in return. Take the time to chat with an HR or benefits administrator, if available, at your company to understand the upsides and the downsides of each insurance.

While preparing for the worst, we have to think about how we plan our estate, and possible medical expenses in the future. Among other things, we should be considering:

  • Power of attorney for health care
  • Last will and testament
  • Trusts, if applicable

Financial and medical power of attorney is a very important consideration. A power of attorney is a document that stipulates who you designate to make all your health decisions in the event you’re incapacitated. If you’re intubated or in a coma, you’re unable to make these decisions yourself—and it can fall on your designated power of attorney to make the decisions that could decide your life. It’s an incredible responsibility, and designating someone should be very carefully considered.

Similarly, creating your last will and testament is a vital step. While it can be very uncomfortable to discuss these things, from a financial planning point of view, it’s highly necessary to weigh it all carefully. You want to leave something behind for your family, and you want to ensure what you accrued in life is divvied up correctly to your beneficiaries. We’ve seen too many stories of people who picked the wrong plan and wasted the work of decades. Financial planning can help avoid this precarious scenario.

When planning estates and wills, it’s a good call to consult a financial professional to help make the most of the inheritances and assets. You want your heirs to get as much of your estate as possible upon your death. There are various ways to distribute the funds and inheritance to fully capitalize on it without sacrificing large chunks. Money can be saved simply by being smart and taking steps to mitigate the distribution.

It’s important to consider taxes. The federal estate tax is imposed on assets handed down to beneficiaries. An estate tax is based on the net worth of the deceased. Inheritance taxes are imposed under the laws of certain states. Inheriting assets is considered a privilege by the inheritance tax and is thus paid by the beneficiary rather than the deceased. This is something to consider when discussing end-of-life scenarios and power of attorney.

COVID has, fundamentally, rewritten the notions of retirement that we used to have. With massive amounts of career layoffs, medical expenses, and other financial accruals, Americans have lost a lot of their savings after dipping into their emergency funds. According to CNBC, retirement ages have likely shifted from 65 to 69. Americans already were behind in their savings and retirement planning, and social security is an issue that keeps getting kicked down the road for most.

The pandemic is an opportunity to reset. If you have a different career or an adjusted projected retirement age, begin by taking stock of your finances and your earnings. Carefully set a budget. Rebuilding savings and emergency funds should be a high priority. We have the power to get back to where we were before the pandemic, even if the phrase back to normal has come to seem like an elusive cliché at best.

Having a definite breakdown of where your money goes, and what percentage you spend on different things throughout the month, helps ensure you’re paying attention to the details. It helps show you what you have, what you want, and most importantly, where you could be. Small savings in the short term add up to big savings and large wealth creation gains over time. Create a careful nest egg that’s designed to be resilient in the future and keep you on your feet for at least three to six months in case of an emergency.

Our good health and our retirement are closely linked. We want to be healthy and active and financially secure in our retirement age. We should consider saving for retirement when we’re younger. Starting in your 20s has always been a safe bet that pays off. The longer horizon you give yourself for financial preparation is best. The more you have accrued, the better you can handle the unexpected aspects of life while preparing for the ones you’re looking forward to. If you’re younger during this pandemic, this is the perfect time to start seriously considering it.

If you’re entering retirement during COVID or have done so within the last few years, continue monitoring investments very closely. If you’re concerned about death imminently, take steps to mitigate that risk. Ensuring portfolio investments are distributed properly and equitably to chosen beneficiaries can mean working with advisors and planners to assess risk and benefits. Planning for estate taxes and various costs is essential early on. Organizing and funding a trust is often a good strategy for early retirement and estate planning, especially when one has just started a family.

Just because COVID has changed our financial priorities and shifted our attention to different outlooks doesn’t mean it has to catch us off guard, or make us anxious. If it all seems like too much to do on your own, consider a financial planner. Financial planning involves working closely together to tailor a plan to your needs. Your current age, risk tolerance and your time horizon are factored in to lay the groundwork for a successful financial life. Strategic financial planning for emergencies, like COVID, doesn’t have to frighten or terrify us if we approach it realistically, diligently, and with a focus on security.

Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.