Money in the Time of COVID-19

This may be one of the most challenging columns I have ever had to write.

One reason is that the entire country is affected by the novel coronavirus. As I write these words, schools are closed. Grocery store shelves are empty by 11AM. Travel has ground to a standstill, and entire communities are being asked to “shelter in place”. Nobody gets to wake up to life as usual: not tomorrow and not for a while.

The other reason is that there’s so much we don’t know. This situation is unprecedented. We will learn more about COVID-19 in the coming weeks. At some point in the future, we will look back and this will all make sense.

Today, nobody has the crystal ball.

So naturally, people are worried. They are concerned for their health, their way of life, and their finances. With the markets rallying to recover and dropping in the span of minutes, what will happen to retirement savings? Is it a good idea to go to cash, or is it better to wait and see? And what about all the people who are being laid off, put on leave, or asked to work in a way that’s neither convenient nor comfortable?

There are many questions and few answers, at least right now.

However, here’s a bit of good news.

There are some things that you can do to potentially avoid expensive mistakes made out of fear. There may even be ways to use this situation as an opportunity.

Here are the 5 things to ponder.

Continue to contribute to retirement savings

If you are still working, keep making contributions to your 401(k), 403(b), or IRA. It may seem counterintuitive, especially since the market has been so volatile. However, if you keep up your regular contributions, you can stand to get at least three benefits.

One, your contribution is tax-deductible, which means a discount on your tax bill. Two, if your employer matches your contribution, that’s free money you wouldn’t want to miss out on. And three, as long as the fundamentals of our economy still work, you are buying into great companies at a discount. Dollar-cost averaging may be a technical term, but it’s also a good way to build a nest egg for retirement.

Build a (pandemic) budget

You may be the type who diligently tracks every dollar, or you may be allergic to budgeting. Either way, now is the time to take a serious look at your household budget. What cash flow can you count on in the next 2-3 months? What expenses are essential for your survival? Which expenses could you cut if your hand was forced? Knowing the answers will give you a measure of control. It will also set up the framework for future choices, should they become necessary.

Look into refinancing

If you have a mortgage or other debt, you may think about refinancing to take advantage of the recently lowered interest rates. This strategy is not for everyone. The right answer will depend on your credit, as well as how long you plan to stay in your home, how much mortgage you’ve got left, how much it would cost you to refinance, and many other factors. Talk to your financial planner or CPA!

Consider starting your Social Security or annuity payments sooner than planned

In a perfect world, we would all want to get the maximum possible monthly benefit amount from Social Security. However, given the volatility in the markets, it may make sense for some people to delay the moment when they have to tap their retirement savings accounts. That would give account balances a chance to recover and potentially provide for a more comfortable retirement in the long run. Check with a financial planner first.

Use this time wisely

My last point may come as a surprise, but it may be the most important one yet. This forced interruption in business as usual has given many of us an abundance of open time. If you use it well, you will emerge from this turbulence feeling stronger, better, and smarter than before.

So, connect with your village — even if it has to be by phone or through the social media. Share your resources and knowledge. Learn a new skill. Go for a long walk if your community allows that. Do some light exercise every day. Get some sleep. Read that book that’s been sitting on your nightstand for a month.

And, at the end of the day, remember that the world is full of helpers. Times like this test our ability to adapt, but they also give us hope.