COVID’s Financial Toll Isn’t What You Think

Only a few years ago, Rose retired with a decent size 401 (k). With careful budgeting and part-time work, her retirement finances went well. Rose was looking forward to her trip, rekindling her passion for photography and spending time with her son and her grandchildren.

The pandemic has changed everything. Her son was infected with COVID-19 early in the pandemic. His health deteriorated rapidly and he died at the age of only 35. He didn’t have life insurance. A gig worker without a 401 (k), he had very little savings in his retirement.

Rose’s grandchildren, ages 2 and 6, join more than 140,000 US children under the age of 18 who lost their primary or secondary caregivers in a pandemic from April 2020 to June 2021. I did. This is about 1 in 450 children under the age of 18. united states of america.

Rose’s ex-daughter-in-law fought drug addiction and lost custody of her children during her divorce, so Rose became the primary caregiver for her children. Caring for a young child as an older adult soon realized that it was physically more difficult than raising her son, and the difficult decision to quit a part-time job to gain the energy to care for her active grandchildren. I did. She wants to do everything for these kids who have lost a lot of her — but it jeopardizes her financial security.

Sadly, she is not alone.

Older people continue to suffer from the highest COVID mortality rates, while younger people’s mortality rates are increasing disproportionately. Mortality between the ages of 74 and 84 increased by 16% due to the pandemic. According to the Centers for Disease Control and Prevention, there was a 24.5% surge for people aged 35-45. Similar increases were seen in other age groups.

Scott Davison, CEO of insurance and retirement company One America, says the mortality rate for workers aged 18-64 has risen by 40%. “Just to see how bad it is, a catastrophe of 3 sigma or 200 years will increase by 10% over pre-pandemic levels,” says Davison. “40 percent is unheard of.”

From grandparents who are currently raising grandchildren to beneficiaries who have to manage unexpected inheritances, to the loss of family wages, the economic repercussions of a pandemic can last for generations.

Inheritance is too early

Susan and her husband face significant financial challenges, such as suffocation of credit card debt and foreclosure of homes. When Susan’s mother died of COVID, she received a $ 450,000 inheritance. Susan now has a salary-to-salary and financial safety net from her live salary.

Susan is also paralyzed with guilt. She has her urgent financial needs, but she can’t act emotionally and doesn’t know how her mother wants her to spend her money.

Meanwhile, a young man named Brandon experienced a problem caused by another type of sadness. Brandon’s parents divorced when he was young, and he was hit hard by the death of his father in COVID complications when Brandon was only 19 years old. Brandon, as the only beneficiary of his father’s property, has gained access to nearly $ 1 million in property. Without financial guidance, and supported by a party lifestyle, a love for luxury and expensive toys, and some very poor investment decisions, Brandon quickly broke hundreds of thousands of dollars. Brandon did not have the intellectual or emotional ability to handle unexpected wealth.

Of course, young people are not the only ones who find it difficult to obtain wealth. We all heard and read about the millions-winning and bankrupt lottery winners.

The only thing Brandon stopped wasting his entire heritage was that he was arrested for drinking and driving, took part in treatment, and turned his life around.

Long distance

Ed has experienced chronic fatigue and shortness of breath for the past six months long after being admitted to COVID. He has sleep problems and the “brain fog” affects his performance at the small tech company he works for. He often misses work. One day, Ed can hardly get out of bed.

He is worried that he will lose his job and is afraid that he will not be able to return to work. Ed is in a hurry to lose his health insurance when he needs it most.

Thankfully, Ed’s employer offers long-term disability (LTD) insurance as part of its benefit package, but it only replaces 60% of Ed’s pre-tax salary. Even as part of a double-income household, Ed’s LTD benefits are not enough to cover the living expenses of his family.

Ed has good reason to worry about joining 11 million Americans with over $ 2,000 in medical debt and 3 million Americans with over $ 10,000 in debt.

What to do today to prepare for lost wages

The pandemic was a call for awakening for many of us. Rose, Susan, Brandon and Ed suffer in many ways. My goal is to help minimize the financial distress of people affected by COVID-19 by providing some recommendations.

1. Protect your wealth with Spendthrift Trust

Parents often believe that their children automatically inherit money management and budgeting skills. But that won’t happen unless we talk to our kids about money.

Maybe we came from a poor background, and with a lot of effort and a savvy financial plan, we have accumulated a fair amount of wealth. We strive to give our children everything we didn’t have. Our children never learn financial discipline.

In wealthy families, 70% lose wealth by the next generation and 90% of families lose wealth by the next generation.

The trust spending savings clause not only reduces the guilt that Susan experienced by giving a clear overview of how the assets are used, but also protects Brandon from leaking wealth. With irreparable trust, you manage how to distribute money to your heirs for a period of time or as needed to buy a home or pay for education. If the heir is in a litigation-prone profession, you can also design trust to protect the heir.

I asked the client to specify that the child needs to have a full-time job to receive the property, or attend an AA meeting or continue to meet the therapist. In some family situations, especially those with a history of substance and alcohol abuse, this is perfectly rational and only you can determine the number of controls to place.

However, the waste trust does not have to be complicated. For example, Brandon’s dad could have specified that his son would receive one-third of trust at the age of 21, one-third at the age of 30, and the last one-third at the age of 35.

While it is common to appoint a family member or close friend as the executor, clients typically designate the company’s executor as the executor through a bank or a wealth management company affiliated with the company’s trustee. recommend to. Checks and balance are built into the trust, and families do not face the difficult task of enforcing regulations. The family can replace the trustee of the company, but must appoint a trustee of another company to act as a co-executor.

2. Protect your income with long-term disability insurance and save on medical expenses with HSA

Life insurance provides the coveted financial safety net in the event of death, but with long-term effects affecting the ability to make a living despite having survived the first seizure with COVID-19. There are millions of Americans who continue to receive.

The US government estimates that the acute sequelae of SARS-CoV-2 (PASC) can affect up to 23 million Americans. An estimated 1 million so-called “long-distance workers” are unable to work at any time, forcing 45% to reduce working hours. They can lose their employer-provided health insurance when faced with tremendous medical costs.

According to a 2021 insurance barometer survey, more than four in ten Americans will face financial difficulties within just six months if they lose their primary wage earners. One in four will have financial difficulties within a month. Only 39% of Americans surveyed say they can comfortably cover an unexpected $ 1,000 cost.

Having long-term disability insurance (LTD) through his employer makes Ed one of the lucky ones. According to the US Bureau of Labor Statistics, only 35% of employees have access to LTD insurance through their employer.

Review your short-term and long-term disability policies to determine if you have enough benefits to cover your family’s living expenses while you are absent from work. The standard redemption amount is 60%, but the policy may have low payments, long wait periods, or cover a certain period of time.

Remember that you have to pay taxes on your benefits. This can significantly reduce the remaining living amount.

Private LTD insurance policies help cover most of the lost income. It cannot replace 100%, but supplementary policies can provide approximately 80% to 85% of income before tax.

Yes, social security provides disability insurance benefits, but it is very difficult to qualify. I’ve seen it take more than two years to approve.

If you have highly deductible health insurance, you can use your Health Savings Account (HSA) to save on pre-tax income for a variety of medical expenses. Unlike the Flexible Savings Account (FSA), which needs to be “used or lost”, the HSA rolls over each year. If you change jobs or leave, HSA will go with you.

3. Update your financial plan and find resources to take care of your grandchildren

It’s sad, but instead of exploring other options, I see too many older people spending their retirement or taking reverse mortgages in their homes to feed their grandchildren. I’ve been. For example, the Social Security Administration or your state may benefit children who have lost their parents.

Rose’s new financial responsibility to her grandchildren can easily upset her retirement. Thankfully, Rose contacts her to update her budget and real estate plans to include contingencies such as trusts in case she dies before her grandson becomes financially independent. I cooperated. Rose didn’t have life insurance because she wasn’t financially dependent. She is doing so now, so she bought life insurance to protect her grandchildren.

Rose and I review all real estate documents, including her will, attorney’s authority, and medical attorney’s authority to make sure they are up-to-date and reflect her current wishes. bottom.

Rose also includes local child care resources and referral agencies, child tax credit payments established by the American Rescue Plan, supplemental nutrition support programs, temporary support for poor families, Medicade and subsidized early childhood programs. Looked up financial assistance from other resources, such as early head start and head start.

Rose is also a bipartisan collaboration of health, education and economic leaders working with federal, state and local governments to create coordinated responses to help families who have lost caregivers, Hidden Pain. I found support from.

A little good news

The pandemic has directly or indirectly affected us all. For many of us, the pandemic is a mortality check, which promises to improve not only our physical health, but our financial health as well. Northwestern Mutual found that one-third of Americans said economic discipline had improved since the pandemic, and 95% expected these habits to continue.

The pandemic has also spurred new interest in life insurance policies. 31% of Americans say they are more likely to buy insurance with COVID-19. Of those who test positive for COVID-19, 42% say they are more likely to buy life insurance.

We hope that these healthy economic habits will continue long after this pandemic has subsided, and that many of us will be prepared for an unexpected tragedy.