Financial Impact of COVID-19
Updated: Aug 5
What is COVID-19, how did change our day to day life?
How our government responded?
Economically where do we stand?
Is the federal governments intervention a positive or negative outcome?
Is it possible to retire during this time?
What are some solutions so you are able to retire as planned?
We are truly living through strange times. For the first time in centuries, our country has a pandemic that is causing millions of people to be very ill. Thousands have already died, and these losses have increased the seriousness surrounding the epidemic. In response, there were new protocols implemented worldwide in hopes of decreasing the number of people infected. However, as a result, this has put a halt on our economy. Many small businesses were forced to close, and other companies are hanging on by a thread. Millions have been laid off from their jobs. There are many questions as to how the United States economy will recover. How will we overcome this substantial accumulating debt? How will this affect individuals who want to retire?
COVID-19, What is it?
The COVID-19 is a virus, also known as SARS-CoV-2, it's a new virus that we've never seen in humans before. It caused a worldwide pandemic of respiratory illnesses. According to John Hopkins Medicine most cases, it may appear like the flu or bad cold. However, some rare cases caused respiratory problems, kidney failure, and death. Since July.28th 2020, there have been 654,327 deaths; yet 9,590,929 people have fully recovered from this illness. Researchers know this virus can spread through droplets released into the air. When an infected person coughs or sneezes, these droplets travel a few feet and fall to the nearest surface. This why scientists believe face mask and social distancing are most effective in preventing the spread of this virus. This is also what pushed the government's call to action to put in place a stay at home executive order.
Our Government Response
In January, medical specialist noticed a large outbreak of what they thought at the time was a type of pneumonia. Further research and data proved otherwise. With little to no information in regards to this new virus, the government had asked the general population to quarantine themselves and work from home if they can. Many people were unable to work from home, and as a result, these workers were either temporarily or permanently laid off from work. This widespread unemployment has deeply affected our economy.
In response to the economic disaster, the federal government implemented a series of programs to help keep our economy afloat such as lowering interest rates to reduce cost of borrowing and purchasing securities to put a series of lending programs specifically to:
To support individual households, they've deferred or reduced student loans, auto loans, and credit card loans. They also passed the CARES Act that provided the one time payment of $1,200 check, or also commonly known as the stimulus check. Many didn't qualify for this stimulus check. However, as we speak the senate is working to pass the another Act. Before federal benefits run out, the HEALS Act has been discussed to supplement these foreshadowing issues to come. This may take some time to decided since there's not necessarily a single bill but a series of proposals. Ultimately, we will see in the near future what decision is made to continue to support families during this troubling time.
Economically where do we stand?
The corona virus pandemic is inflicting economically in the United States. Its been estimated 36 million people have lost their job between February and April 2020. This is the highest level of unemployment since the Great Depression. The unemployment offices have been flooded with claims. Its also been estimated more than 100,000 small businesses have already permanently closed, and many more face a grim outlook. Now state and local governments are looking to cut jobs due to a decrease in tax revenues and an increase in spending to help families and businesses, so they are able to place those funds back into the economy.
Is the Federal Government intervention a good thing?
There has been considerable debate if federal government should keep the economy afloat by providing additional assistance. Policymakers have begun to argue against further action and that we're only adding to the national deficit. While others feel this concern is misplaced. We need to sustain the working middle class to prevent a further division in income and wealth inequality. Economic research shows there is a way for the federal government to intervene without putting our country in crippling debt. This will require strategic planning of future spending, smart investments, and tax policy. There's been a push for further tax cuts and employers to hire. However, tax cuts will only ensure long-term deficits without any tangible benefits. Ultimately it's essential for the government's future revenue to rise, and the reliance of assistance programs decreases. With time if the federal government engages in a well-designed countercyclical fiscal policy, the deficit could shrink. Realistically, this plan depends on multiple factors working together to create economic relief. This includes the cooperation of the American citizens for higher taxes, less government spending, and less assistance. Will everyone be willing to come together and to help the United States overcome this difficult time?
Is it possible to retire during this time?
Retirement is going to be different for each individual. Some factors include savings and invests. According to CNN Money to determine if you're ready to retire, you need to ask yourself some of these questions listed below:
· What are my current expenses?
· Will I have a mortgage?
· How much monthly income do I need to live comfortably?
· Did I factor in the rising cost of health care expenses?
· How should my strategy change as I get older?
· Will pensions and social security be enough?
Look over your personal information, consult an expert, sit down with a financial advisor. Plan a strategy that will protect your assets during times of crisis, such as COVID-19.
What are some solutions?
One important solution is Income allocation is an income-based strategic plan. It requires you to evaluate three different risk factors that affect your retirement portfolio. Income allocation three risk factors include longevity risk, sequence risk, and withdrawal risk. Longevity risk is the chance that you'll outlive your resources. Sequence risk is the impact of a bear market occurring just before or after you retire. This is what retirees are currently experiencing with the COVID-19 pandemic. Then finally, withdrawal risk is the risk of depleting your portfolio too quickly. It's also important to recognize your social security and 401k may not be enough to support your lifestyle. Other factors, such as taxes and the rising cost of healthcare, will keep growing, and your portfolio will have to accommodate these additional expenses. According to David Gaylor, if you have this strategy with financial product innovation and new thinking will guarantee lifelong income.
For any additional questions or comments, please email or call our office at Ron Courser & Associates.
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