Just a few years ago, Ross retired with a decent 401(k). With some careful budgeting and a part-time job, her retirement finances are on track. Rose is looking forward to traveling, rekindling her passion for photography, and spending time with her sons and grandchildren.
The pandemic has changed everything. Her son contracted COVID-19 early in the pandemic. His health deteriorated rapidly and he died at the age of 35. He has no life insurance. As a gig worker without a 401(k), he has very little retirement savings.
Rose’s 2 and 6-year-old grandsons joined more than 140,000 U.S. children under 18 lost primary or secondary caregivers Due to the pandemic from April 2020 to June 2021. That’s about one in every 450 children under the age of 18 in the United States.
Ross became the children’s primary caregiver after his ex-daughter-in-law struggled with drug addiction and lost custody of the children during the divorce. She quickly found that caring for young children as an adult was more challenging than raising her son, so she made the difficult decision to quit her part-time job in order to have the energy to care for her active grandchildren. She wants to do anything for these children who have lost too many – but that puts her financial security at risk.
Sadly, she is not alone.
Older adults continue to suffer the highest COVID-19 mortality rates, but younger adults experience a disproportionate increase. The death rate for people aged 74 to 84 has increased by 16% due to the pandemic. It jumped 24.5 percent, according to 35- to 45-year-olds. Centers for Disease Control and Prevention. Other age groups saw similar increases.
Among workers aged 18 to 64, Scott Davidson, chief executive of insurer and retirement company OneAmerica The death rate has risen by 40%“Just to let you know how bad this is, a 3 sigma or 200 year catastrophe would be a 10 percent increase from pre-pandemic levels,” Davidson said. “Forty percent is unheard of.”
From grandparents now raising grandchildren to beneficiaries who suddenly have to manage unexpected estates to those who lose their family wage earners, the economic impact of the pandemic can last for generations.
legacy too early
Susan and her husband faced considerable financial hardship, including stifling credit card debt and home foreclosure. When Susan’s mother died of the coronavirus, she received an inheritance of $450,000. Susan went from living paycheck to paycheck and had a financial safety net.
Susan is also paralyzed by guilt. She has immediate financial needs, but is emotionally unable to act, not sure how her mother wants her to use the money.
On the other hand, a young man named Brandon has a different kind of grief-triggered problem. Brandon’s parents divorced when he was very young, and his father died when Brandon was 19 from complications from COVID, which hit him hard. As the sole beneficiary of his father’s estate, Brandon now has nearly $1 million in assets. Without financial guidance, a party lifestyle, a love of fancy and expensive toys, and some really bad investment decisions, Brandon quickly ran out of hundreds of thousands of dollars. Brandon just doesn’t have the intellectual or emotional capacity to handle unexpected wealth.
Of course, it’s not just young people who struggle to keep their wealth. We’ve all heard or read stories about lottery winners who win millions and end up going broke.
The only thing that stopped Brandon from squandering his entire estate was his DUI arrest, medical treatment and his life changed.
For the past six months, Ed has experienced chronic fatigue and shortness of breath long after he was hospitalized with COVID. He had trouble sleeping, and “brain fog” affected his performance at the small tech company where he worked. He often misses work. At times, Ed could barely get out of bed.
He worries that he will lose his job and that he will never be able to return to work. Ed worries that he will lose his health insurance when he needs it most.
Thankfully, Ed’s employer offers Long Term Disability (LTD) insurance as part of his benefit plan – but it only replaces 60% of Ed’s pre-tax wages. Even as part of a dual-income family, Ed’s LTD benefits are not sufficient to cover his family’s living expenses.
Ed has good reason to worry about joining the ranks of the 11 million Americans who owe more than $2,000 in medical debt and 3 million owed over $10,000.
What to do today to prepare for the loss of wage earners
This pandemic has sounded alarm bells for many of us. Rose, Susan, Brandon and Ed are suffering in many ways. My goal is to help reduce the financial suffering of those affected by COVID-19 by offering some advice.
1. Protect your wealth with the Spendthrift Trust
Parents often assume that their children will automatically inherit their financial and budgeting skills. But that’s not going to happen unless we talk to our kids about money – which few of us do.
Perhaps we were born poor, and through a lot of hard work and shrewd financial planning, we have accumulated considerable wealth. We strive to give our children everything we don’t have. Our kids never learn financial discipline.
in wealthy families, 70% lose wealth By the next generation, 90% of households in that generation lose it.
Splurge clauses in trusts Either as Susan did, by clearly outlining how the assets were used to alleviate guilt, it also prevented Brandon’s wealth from leaking.under irrevocable trust, you can control how funds are distributed to your heirs over a period of time or as needed, such as to buy a home or pay for education. You can also design a trust to protect your heirs if they work in a profession that is prone to litigation.
I have clients specifying that their children must have a full-time job in order to receive assets, or that they must attend an AA meeting or continue to meet with a therapist. In some family situations, especially those with a history of drug or alcohol abuse, this makes perfect sense, and only you can decide how many controls to implement.
However, profligate trusts don’t need to be complicated. For example, Brandon’s father could have appointed his son to receive one-third of the trust at age 21, one-third at age 30, and the final third at age 35.
Although it is common to name family members or close friends as executorI recommend clients also Designated corporate trustee, usually through a bank or wealth management firm working with the corporate trustee as a co-executor. The trust has built-in checks and balances, and family members are not faced with the difficult task of enforcing the regulations. While family members can change corporate trustees, they must appoint another corporate trustee to act as a joint executor.
2. Protect your income with long-term disability insurance and save on medical bills with an HSA
Life insurance provides a much-needed financial safety net in the event of a death, but millions of Americans who survived their initial COVID-19 infection continue to suffer long-term effects that affect their ability to earn a living.
The U.S. government estimates that the acute sequelae of SARS-CoV-2 (PASC) may affect as many as 23 million Americans.An estimated 1 million so-called “long-haul haulers” are unable to work at any given time, and 45% forced reduce their working hours. When they face staggering medical bills, they can lose their employer-sponsored health insurance.
More than 4 in 10 Americans will face financial hardship in just six months if they lose their primary wage earner. 2021 Insurance Barometer study. One in four will be in financial trouble within a month.only 39% of Americans Respondents said they could easily cover an unexpected $1,000 expense.
Obtaining Long Term Disability Insurance (LTD) through his employer makes Ed one of the lucky ones.According to the U.S. Bureau of Labor Statistics, only 35% of employees LTD insurance can be obtained through the employer.
Review your short-term disability and long-term disability policies to determine if benefits are sufficient to cover family living expenses while you are unemployed. The standard replacement amount is 60%, but your policy may pay less, have a longer waiting period or cover a fixed period of time.
Remember, you pay taxes on benefits, which can significantly reduce the amount you have left to live on.
A sort of Private Limited Company Insurance Policy Can help make up most of your lost income. While you can never replace 100%, supplemental policies can provide around 80%-85% of your pre-tax income.
yes, Social Security provides disability insurance benefits, but it is very difficult to qualify. I’ve seen approval take two years or more.
If you have a high deductible health plan, you can use Health Savings Account (HSA) Save pre-tax income for various medical expenses. Unlike a Flexible Savings Account (FSA) where you have to “use it or lose it,” an HSA rolls over each year. If you change jobs or retire, the HSA is with you.
3. Update your financial plan and explore resources to care for grandchildren
It’s heartbreaking, but I’ve seen too many seniors spend their time in retirement reverse mortgage Support their grandchildren in their home instead of exploring other options. For example, the Social Security Administration or your state may provide benefits for children who have lost their parents.
Rose’s new financial responsibilities to her grandchildren could easily derail her retirement. Thankfully, Rose reached out, and together we updated her budget and her estate plan to include contingencies — like trusts — in case she died before her grandchildren became financially independent. Ross doesn’t have a life insurance policy because she doesn’t have anyone financially dependent on her. She does now, so she buys a life insurance policy to protect her grandchildren.
Ross and I reviewed all of her estate documents, including her will, power of attorney, and health care power of attorney, to make sure they were up-to-date and reflect her current wishes.
Ross has also sought financial help from other resources, including her local child care resources and referral agencies, the Child Tax Credit payments established by the American Relief Program, the Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, Medicaid, and the Subsidized Early Childhood Program, Such as early lead and lead.
Ross also got hidden paina bipartisan collaboration of health, education and economic leaders who work with federal, state and local governments to develop a coordinated response to help families who have lost caregivers.
little good news
The global pandemic has affected us all, directly or indirectly. For many of us, the pandemic is a check on mortality, and it has made us work on improving not only our physical health, but our financial health as well. Northwestern Mutual found that one-third of Americans say their financial discipline has improved since the pandemic and 95% expected Stick to these habits.
The pandemic has also sparked new interest in life insurance policies: 31% of Americans say they are more likely to buy insurance because of COVID-19. Among those who tested positive for COVID-19, 42% said they would likely buy life insurance.
Long after this pandemic has subsided, I hope these healthy financial habits continue so that more of us can prepare for unexpected tragedies.
Brightworth LLC Wealth Advisor
Jason Cross is a Wealth Advisor at McGill Advisors, a division of the firm Bleworth. He works with high net worth families in investment management and estate planning, and helps business owners develop financial plans to sell their businesses. Jason is a Certified Financial Planner™, Registered Trust and Financial Advisor, and an active member of the Georgia State Bar.