Author: Jean Wilczynski
Losses in the Air - How to Be Prepared
By: Jean Wilczynski, CFP®, Senior Wealth Advisor
Many people have either lost their jobs due to the coronavirus pandemic or are at risk of losing them. Although restrictions put into place to flatten the curve have loosened, the economic impact and uncertainty created by the pandemic is still being felt by Americans across the country.
With this in mind, we thought it might be helpful to compile a few of the most common questions we’ve received as it relates to potential job loss as well as action steps you can take now to ensure you and your family are financially sound should this happen to you.
1. What financial steps should people who are still employed be taking now to ensure they will be OK if they lose their jobs?
First, don’t panic. There are programs available to help people who lose their jobs. Start by focusing on what is most important – protecting yourself and those you care about.
Determine which expenses are critical to cover in the short term and double that time frame. For most of us, these critical expenses include housing, food and health care.
With regards to health care, evaluate your options. If you receive health care from your employer, find out the actual cost of coverage – not just what you currently pay – so you know what the cost would be if you had to rely on COBRA.1 If that does not seem sustainable, research other options such as health care exchanges, so you understand how to apply for and quickly obtain coverage if needed.
Research financial assistance programs in your area. Keep a detailed list of these resources, so the information is easily accessible if needed. For example:
• Find out what rules are currently in place for deferring or delaying payments for rent, mortgage and utilities. Also, determine the eligibility criteria and application processes for these programs.
• If you are making monthly debt payments, including paying down mortgages, car loans, student loans or credit cards, review your terms and talk to your lenders. They may have programs in place to provide temporary forbearance.
• Determine your eligibility for unemployment insurance payments and familiarize yourself with the application process.
• If you are self-employed, research programs for obtaining small business loans, grants or other programs that might be available in your area.
2. How much of a financial safety net should be in place and can it be built quickly?
We recommend having enough to cover three to six months of your fixed expenses (e.g., housing, food, etc.) in a safe, liquid emergency fund such as a bank account, money market or cash. If your income fluctuates, you may want to save enough to cover up to 12 months of expenses.
If you have not built up your cash reserve to that level, you should take some steps now to do so:
• Consider taking on additional hours or looking for freelance work.
• Reduce or eliminate nonessential subscriptions and automatic monthly payments and redirect those funds to your emergency savings.
• Temporarily stop contributions to your retirement plan at work.
Another way to boost your savings is to combine your expenses with others (e.g., find a roommate). Credit cards and home equity lines of credit are also options to consider in an emergency, though they are less desirable in the long term as they will add to your debt burden at relatively high interest rates.
3. What behaviors should be avoided?
Using retirement funds should be considered a last resort. However, if you need to tap your retirement funds, use caution and be sure to understand the rules. Also note, the CARES Act provides some penalty relief for early withdrawals. It also allows for extending tax payments over three years and provides options for returning the withdrawals over that same period.2 Withdrawals of your contributions without penalty or taxation has always been an option with Roth IRAs.
There is no doubt we are going through challenging times, but as your advisors, we are here to help. There is no shame in asking for financial help or guidance. If you have any questions or concerns about your financial plan, reach out to your Exencial advisor anytime.
1. U.S. Department of Labor – Continuation of Health Coverage (COBRA)
2. U.S. Department of the Treasury – The CARES Act works for all Americans
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