One silver lining in any disaster is that we learn from it. The coronavirus pandemic was no exception. Governments learned, scientists learned, and hopefully you did, too. Let’s look at Four Personal Finance Lessons from the Coronavirus—lessons that include: Expect the unexpected, be financially flexible, don’t ignore estate planning, and remember to plan your retirement holistically.
Once the World Health Organization declared Covid-19 a pandemic, the whole world changed. Even after the dust settled, the lingering impact of Covid-19 was just beginning. The pandemic affected every aspect of our lives. It hit us physically, mentally, and financially. In many ways, it hit older people the hardest. Of the more than 600 thousand Americans who died from the virus, most were over 65. The unemployment rate for workers 65 and over hit 15.6 percent – the highest ever recorded. Some people were forced to dip into their retirement savings. Others had to retire early due to layoffs or health concerns. These are all tough situations. However, in some cases, they might have been minimized or even avoided with better planning.
You can’t predict a pandemic, but there are ways you can potentially minimize the impact of any sudden life-changing event. First, have an emergency fund. A savings account with enough to cover six months of expenses will buy you time in the event of a job loss, illness, or other tragedy. This should hopefully be enough time to help avoid any permanent financial damage. That savings will go even farther if you don’t have to put it toward credit card bills. So, paying down debt is another good way to expect the unexpected. You should also know your risk tolerance. Even though the stock market recovered, its dramatic drop at the start of the pandemic was a wake-up call for some people. They realized for the first time how vulnerable their assets were to a major market correction. In other words, their financial strategy was wrong for their risk tolerance. I’ll talk more about that with Jeff in a moment.
When I say flexible, I don’t mean a financial plan you can change willy-nilly. I mean one that’s diverse and forward-looking that you can modify based on changes in your life. The pandemic brought on major changes for a lot of people. Some lost jobs, some had to adjust their goals or delay retirement. Some realized they were carrying too much risk. When those things happen, you need a financial strategy you can adapt to address these changes and anticipate new ones. One of the reasons investing for income works regardless of market conditions is its flexibility. In fact, the pandemic offered a good example of how flexibility keeps the income model viable in the midst of market changes. For example, as the economy picked up strength again earlier this year, long-term interest rates rose, creating a headwind for some income investors. However, the effects of that headwind were potentially minimized in many income portfolios through diversification and active management. Also, income investors who wanted to lower their risk during the pandemic were able to do so. Others chose to actually increase their risk to take advantage of potential new opportunities created by the crisis. I’ll talk more about that shortly.
Once again, the majority of people who died from Covid-19 were over age 65. Many were on life support before they died. How many families struggled with the ultimate hard choice because they had no advance care directive? How many victims of the virus died without leaving a Will? As an advisor, I talk a lot about the importance of estate planning. Without an estate plan, all your assets from your money to your property may end up being distributed by the courts after you die. As a result, your family may end up fighting and burdened with legal fees as they try to sort things out. The point is estate planning isn’t something you put off until you’re hit with a life-threatening illness. It’s something you do to prepare for the possibility of such an illness or other tragedy. The pandemic offered a stark reminder that tragedy can strike at any time and that the older you get, the more vulnerable you are to a major health threat. At the same time, it’s important to realize that estate planning isn’t just about protecting and distributing your assets after you’ve died. It’s a crucial part of preserving and managing those assets during your retirement years as well!
Health is wealth. That saying resonates more strongly than ever following the coronavirus. What also resonates is the importance of holistic retirement planning. That means planning that encompasses every aspect of what it means to be healthy. Not just your financial health, but also your physical, mental, and emotional health. Let’s face it, your financial stability isn’t worth much if you’re not physically fit enough to enjoy it. Neglecting your physical health can make you more vulnerable to something like a deadly virus, as Covid-19 clearly demonstrated. What’s more, poor physical health is very likely to affect your financial health. The need for more and costlier healthcare already increases with age. Ignoring preventive care and making unhealthy lifestyle choices are sure to increase it more.
By the same token, it’s a fact that mental stress can affect you physically. That means if your financial plan is creating a lot of stress in your life, it may be unhealthy in more ways than you realize. The point is that physical, mental, and financial health are all naturally connected anyway. It only makes sense to consider them all by taking a holistic approach to retirement planning. In many ways, investing for income gives you that holistic approach by helping you build a strategy geared specifically toward your retirement goals, a strategy designed to help reduce financial stress.
Life isn’t fully back to normal yet, but we’ve certainly come a long way from a year ago. In the process, we’ve learned a lot. The priority should now be to put what we’ve learned to good use. In terms of personal finance, that means the things we’ve talked about today: Expect the unexpected. Be strategically flexible. Don’t neglect estate planning. And be sure to plan your retirement holistically… taking your physical, mental, emotional and financial health into account.