Retirement Related Implications of Covid-19

Planning for retirement requires income. Everyone knows this, so why mention it? Sometimes, our income stream is interrupted and our plans have to be adjusted.

It’s not uncommon for health events to upend a financial plan and for many, COVID-19 has done just that. For some who have gotten sick, COVID-19 has kept them from working. Some have been furloughed or permanently lost a job. The real question is what can be done to compensate for loss of income and get back on track.

What you should NOT do

Before we start looking at useful approaches, let’s do a quick review of what most people probably should not do.

1. Liquidate retirement savings. This is the biggest “should not do”. While some Covid-19 legislation (e.g., SECURE and CARES Acts) has made it easier to tap into those funds, if at all possible, most people should not choose that approach. It’s too hard to rebuild retirement accounts and time is not on your side. Having said that, if you’re in danger of drowning financially, grab on to the retirement plan life jacket and get some relief. It may take time and diligence, but you can begin to build back accounts after you stabilize.
2. Take out an advance/loan. Another “should not do” is take out a cash advance or loan to cover current expenses. Cash advances or over-reliance on credit cards also fit into this category. Short-term interest rates can be high and the repayment period may come too soon. You can wind up in worse shape than before taking on the debt.
3. Spend, spend, spend. It probably goes without saying, it’s not a good idea to just spend uncontrollably. Retail therapy is a thing but it doesn’t do much to help your financial life.

What approaches should you consider?

First, rather than retail therapy, consider cutting back—maybe significantly—on spending. You might be surprised at how much help adjusting your budget can provide. To do this, track and list your expenditures for a couple of weeks or a month. As you look at the list, recognize items that could be eliminated without impacting your lifestyle too much. You may need to begin reducing additional expenditures that will make a lifestyle difference. This may only be required temporarily but if necessary, it’s important to do.

For now, consider reducing or eliminating contributions into IRAs and qualified retirement plans. Again, this change may only be temporary but it probably will help your cash flow. Either take care of it yourself via an app or online or contact your company’s payroll department. They should be able to help.

What to do if you’ve lost health insurance

If you have lost your job and are now without health insurance (and don’t qualify for Medicare), there are a few things you might do.

• First, if you’re unsure, agree to a COBRA offer (companies with more than 20 employees must offer continuation of coverage under COBRA). Doing so will keep you covered and will give you time to make a different decision if that’s what you want. If you’re not disabled, COBRA benefits normally last for 18 months. Disability increases the coverage time, as does divorce or dearth of a spouse.
• The Affordable Care Act (Obamacare) offers different levels of coverage: bronze, silver, gold, and platinum. The bronze level will cover about 60% of your medical expenses. That leaves quite a lot for you to cover but the premium is relatively low (compared to other metal plans). Check online with your state’s health care marketplace to see what’s available.

One thing you absolutely do not want to do is cancel or stop paying for health insurance coverage. Health care expenses are high and Covid-19 isn’t helping. If you don’t feel that you can maintain full coverage, you will benefit from maintaining at least some amount of health insurance coverage. If you just can’t afford the cost, your state may have a plan to provide at least minimal medical coverage at little or no cost. Check with your state.

Find other sources of assistance

Different states have varying sources of help available. You may want to look into whether:

• You qualify for a break with your state taxes.
• Your homeowners’ or auto insurer can reduce premiums or delay payment for a period of time.
• Drug companies can offer your prescriptions at a reduced cost.
• Creditors are willing to arrange a forbearance that will give you some extra time to make payments. Be aware though, many such plans require that you repay all deferred amounts in a lump sum. Check the specific arrangement carefully.

Of course, you always can file for unemployment benefits to provide some income after you lose your job. You might want to use this period to look for other employment in case you are not allowed to return to your regular job.

Depending on your state and your specific situation, more benefits may be available. BenefitsCheckUp® is a free, confidential tool from the National Council on Aging that can help you see if you qualify to get help paying for food, health care, prescriptions, home utilities and more. Visit BenefitsCheckUp today.