Strait Talk Blog
How The Pandemic Might, And Might Not, Change Your Financial Plan
Here Is How I Recommend You Think About This Global Event
Chief Business Development Officer, Founder
Cory Baer is the Chief Business Development Officer for Strait & Sound. In this role, he fulfills a dual mission. First, he serves clients by ensuring that they have the best possible financial plan to achieve their long-term goals, particularly complete financial independence. Second, he also serves as an ambassador of the Strait & Sound brand by introducing the firm to the larger community and select strategic partners.
So many families experienced that same thing. This feeling of uncertainty will not likely go away anytime soon. It will stick in our memories. So you might be wondering—if the future feels so uncertain, does it even make sense to develop long-term financial plans any longer? How can you plan for things you can’t see coming? Is this an exercise in futility? I don’t think so. But I do recognize that COVID changed a lot of things and so we should probably change accordingly. After pondering this and talking it over with colleagues, I’d like to submit for your consideration some things you might want to change, and some things you might not want to change, as a direct result of the pandemic.
Before we look specifically at my ideas, I’d like to share some observations about where I think we are right now—as the pandemic seems to be morphing into more of an endemic—something we’ll learn to live with like the annual flu season:
- Life is unpredictable. No one saw this coming. This adds to the feeling of futility.
- Life is short. A lot of people passed away at a much younger age than we might have thought. How can we justify developing long-term financial plans when the long-term may not be there for us? Does that even make sense anymore?
- The ones you love can be impacted in ways that are hard to foresee. The pandemic produced levels of anxiety that most of today’s adults have never experienced—and children too. For example, my 9-year-old daughter was impacted by the uncertainty of not knowing whose mask guidance to follow. When you’re a kid and the adults who lead the world can’t seem to agree on something as basic as wearing a mask, what are you supposed to do?
- Events from halfway around the world can very quickly come right to your front door. We are now truly a global community and with that comes unpredictability. There are many things in life we cannot anticipate. I will virtually guarantee that most financial plans that existed before COVID did not account for a global pandemic.
- There are some things the government can’t seem to predict or quickly address. This is not a political message. This is our new reality. Before COVID, many people had faith that government leaders could foresee and prevent us from experiencing suffering from things like a pandemic. That did not happen. Some portion of our taxes are allocated for institutions whose role is to predict and prevent suffering. I’m not blaming those institutions or saying that they didn’t do their job. What I am saying is that if we have an unwarranted degree of confidence in our government to anticipate and address global problems, we might find ourselves very frustrated.
- Most of the health impacts from COVID-19 seem to be behind us. Because I personally experienced it, I now know how important it is to take care of my health as I age. I know I cannot allow comorbidity health compromises to go unchecked. I must take steps to be as healthy as I can be. Many of my clients feel the same way.
- Protecting the ones you love became more complicated. Most of our clients are family stewards and protecting their loved ones is their primary financial goal. But given all that happened during the pandemic, there seem to be more questions than answers these days about how money should do that.
I’d like to say for the record that I acknowledge all of the complexities I list above. This is not easy. But I also want to say that my experiences of going through the pandemic with clients, friends and family actually increased my sense of purpose. I now believe in financial planning even more than I did before. Why?
It is precisely because life is so unpredictable that we need financial planning even more now than before the pandemic. But our financial planning and strategies need to account for, to an even greater extent, the uncertainties that life throws our way. We need to build plans that are as flexible and adaptable as the situations we are likely to face—whether or not they are yet another global event.
Key Take Away
“It is precisely because life is so unpredictable that we need financial planning even more now than before the pandemic.”
Things You Might Consider Changing
The first thing you might consider changing is your insurance posture—or at least reviewing it to ensure it is up to date and reflecting of your current reality. This would likely include your life insurance, property and casualty insurance, insurance on collectibles and other assets. If it needs to be insured, it’s a good idea to review the policies to ensure they are where you need them to be.
One of the biggest mistakes I see people making has to do with life insurance. People buy these long-term policies and establish beneficiaries and death benefits based on a moment in time. But ten years later, the beneficiaries and the payout may not reflect their current needs. This becomes especially important if loved ones have passed away or if families have gone through a divorce or some other type of catastrophic event that changes familial relationships.
Another area to review is your retirement timelines. Did the pandemic in any way change things for you? Do you maybe need to plan to work a few more years because the pandemic caused income shortfalls? Or do you want to retire even sooner than you thought because the pandemic gave you a sense of how short life really is? How might these changes need to be updated in your financial plan?
What about risk-tolerances? Do you need to take on even more risk now due to losses during the pandemic? Or do you find yourself feeling like you want to lower your risk during this period? How did the pandemic impact your net worth goals? How did it change your tolerance for risk and how might your financial plan need to be updated to reflect that?
How might the pandemic impact you if you’re already retired? Are you still on track for your wealth preservation goals? Should you make changes to your spending habits to preserve your assets? In life after the pandemic, staples cost more. It’s a good idea to assess how your spending on basic needs has changed. Some staples have increased by 30-50% and this could be volatile for some time. We may not be able to get our goods from the lowest-cost providers in the future, especially those providers who are offshore and whose economy has been impacted.
What about your health habits and spending? Now is a good time to review your lifestyle and health goals and to begin to make necessary changes. Exercise programs, nutrition, vitamins and supplements and regular doctor visits are a part of this and they all cost money. You might also consider investing in preventative medicine providers who can help you prevent disease. If you haven’t factored this into your financial plan, it’s a good idea to do so.
Things You Probably Shouldn’t Consider Changing
First, throwing caution to the wind is not a good idea. “Eat, drink and be merry for tomorrow we die” might be a justifiable sentiment for those facing certain death. But now that the worst of the pandemic seems largely behind us, it’s time to sharpen our pencil. I believe that those who prepare usually fare far better than those who do not prepare. Sticking to your financial plan also helps reduce anxiety and gnawing worries in the back of your mind.
Second, I don’t recommend that you decrease the amount of money you think you’ll need in retirement. I wouldn’t recommend that you lower your expectations. If anything, you might need to increase them. You really need a plan that can anticipate and be flexible enough to accommodate changes. If your plan is based on minimum financial requirements for 25 years and was modeled on cost-of-living assumptions from 5-10 years ago, it’s probably time to update your plan and set more realistic expectations.
Third, I don’t recommend that you cut your insurance protections. If there’s one thing that the pandemic taught us, it’s that we can’t predict what’s coming. You may be looking for places to cut costs, but I don’t recommend that you cut corners with insurance. Spend time with your financial advisor to ensure that you have all of your gaps and risks covered. There are probably much better areas to find savings in.
Fourth, I don’t recommend that you give up on achieving complete financial independence. This is a top goal for many of the clients we serve. My colleague Todd Sixt wrote a great article about this where he outlined what complete financial independence looks like:
- Your lifestyle is comfortable, but reasonable and disciplined.
- Your cash in-flows are substantially more than your cash out-flows monthly and annually.
- Your income sources and assets are diversified so that losses in any one area do not force you to alter your lifestyle: social security, cash, investments, pensions, real estate, etc.
- Your income sources will continue to produce more than you need for the rest of your life.
- You may or may not be working for money, depending on what you want to do with your time.
- You have the right set of advisors around you to give you great counsel when you approach forks in the road.
- If necessary, and especially as you and your loved ones age, you have people you trust around you to help manage your financial affairs.
I still believe this goal is very much achievable for those who follow a long-term financial plan. Please don’t give up on this.
You’ll notice that not one point of counsel in this article is investment-specific. That’s for a very good reason. We don’t offer investment advice to broad audiences, like those who might read this article. Instead, our investment strategies are custom-tailored to each specific client’s needs, goals, resources and risk tolerances. If you’re getting investment advice from the internet, be very careful. It’s likely not tailored to your unique needs.
The pandemic has certainly changed many things. So I recommend that you take a close look at your insurance posture, retirement timelines, risk-tolerances, spending habits if you’re already retired and planned expenditures on health habits. These are all areas where it may make sense to make changes.
On the other hand, I don’t think it’s a good idea to throw caution to the wind and give up on long-term financial plans, decrease the amount of money you think you’ll need in retirement or cut your insurance protections. I also don’t think you need to give up on complete financial independence. Those who create and follow a plan are far more likely to achieve it than those who do not.
If you have questions about anything I’ve said in this article, please know my door is open.
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