Staying financially well in the time of COVID-19

As COVID-19 continues to threaten the United States and the world, individuals in every profession have been challenged to examine their financial situation. At Fidelity Investments, we recently conducted a national survey asking people how current events have affected their opinions and behaviors when it comes to their money. The results showed that six in 10 Americans are concerned about household finances over the next 6 months. Unfortunately, we’ve seen that even health care professionals have not been financially spared, with salaries or benefits cut or, worse, furloughs and layoffs as hospital systems struggle. I work with many physicians, including gastroenterologists, in my role as a wealth planner for Fidelity Investments and have received quite a few questions related to shoring up family finances during these difficult times.

Luckily, the financial best practices that I share in “good” times ring true even in today’s world, with a few additions given the health and economic risks created by COVID-19.

1. Review your budget. It’s one thing to know that your budget is generally balanced (the dollars you spend are less than the dollars you earn). But it’s worth taking a closer look to see just where those dollars are going. In times of uncertainty, cutting back on expenses that aren’t necessary or don’t provide meaningful value to your life can be worthwhile. If you or your family have lost income because of the pandemic, you might consider these seven simple tips to help boost your cash flow.

2. Tackle (or find relief from) student loan debt. Doctors today graduate medical school with a median debt of just under $195,000.¹ Repaying these loans is daunting, particularly during the COVID-19 crisis. The recent passing of the CARES Act recognizes these difficult times: in fact, it automatically suspended required minimum loan payments and interest accrual on federal student loans until Sept. 30, 2020. This only applies to federal student loans, not private student loans. Beyond this period, if you are still struggling with payments, you may explore the possibility of refinancing, by taking out a lower-interest private loan and using that to pay off student loans (although this may extend the life of your loan). Borrowers could also consider other programs, such as REPAYE (Revised Pay As You Earn) through which your monthly payment tops out at 10% of your monthly income, or Public Service Loan Forgiveness (PSLF) if you work for a not-for-profit hospital or other qualifying employer. This program forgives the remaining balance on your direct loans after you have made 120 qualifying monthly payments while working full-time for a qualifying employer.

Additionally, borrowers could look for opportunities to reduce accrued interest, either by refinancing to a lower rate or making payments every 2 weeks rather than once each month.

3. Evaluate your emergency fund. It’s a good idea to keep 3-6 months’ of essential expenses in cash or cash-like investments. If you don’t yet have this 3- to 6-month cushion saved, now is a good time to work to reduce your expenses and stash away any extra cash.

4. Save early and often for retirement. You can borrow money to support many of life’s needs, from housing, to cars, to college. But you can’t borrow for retirement. That is why I encourage clients to put retirement savings at the top of the list, after accounting for day-to-day needs of their families. People often ask me whether it makes sense to continue saving for retirement, often a far-off goal for younger doctors, especially in these uncertain times. My answer? Yes. If you are able to save, continue to save: the earlier you begin to make contributions to your retirement account, and the longer you continue to do so, the more your retirement account(s) have the potential to grow over time.

Another question I receive is whether to take distributions from a retirement account early if you find yourself in a precarious financial situation because of the COVID-19 crisis. The CARES Act provides options allowing Americans to take a withdrawal or loan from a participating retirement plan if you, your spouse, or your dependent have a COVID-19 related illness or you’re experiencing a loss of income related to the COVID-19 pandemic. Try to look at alternative sources of income before tapping your hard-earned retirement savings. If you can find a way to continue saving and avoid drawing down your retirement accounts, your future self will thank you.

 

5. If you have a high-deductible health plan that offers it, explore a Health Savings Account (HSA). One of the most important factors in a solid financial plan is knowing how to pay for health care expenses, both now and as we age. HSAs are a tax-advantaged account that can be used to save money for qualified medical expenses. They are considered to provide a “triple-tax advantage” since contributions, qualified withdrawals, and investment growth are all tax-free.² The dollars in these accounts can stay there over time, so in years with low expenses you could use these to save for health care in retirement, while in other years they can be used to pay necessary medical bills. HSAs require the participant to be enrolled in a high-deductible health plan, so you would first need to verify that your employer provides this option.

6. Be prepared to protect yourself, your practice, and your family. Typically, I encourage the medical professionals I work with to review their current insurance plans (such as disability, life, and malpractice) to determine whether they have the right levels of coverage for their situation. With COVID-19 layered on top of the usual level of risk, it’s important to consider reviewing or updating other key elements of your family’s plan, like your health care proxies and a living will.

7. Put your income to work. When your disposable income grows, and you’ve covered all of the foundational elements of a financial plan (a rainy-day fund, contingency planning for health care costs, and so on), it might be the right time to consider investing for something other than retirement. As you do that, be sure you are invested in a diversified strategy with a balance of risk and return that is comfortable for you.

Recent market volatility can bring nerves that make it difficult to stay invested. However, as long as your risk tolerance and time horizon reflect your asset allocation – the mix of stock, bonds, and cash (which a financial planner can help with) – you can take comfort in knowing that historically every severe downturn has eventually given way to further growth.

During uncertain times like these, I think the best guidance is to focus on what you can control. The considerations above are a great place to start building a financial plan to solidify you and your family’s future. A Fidelity survey found that 44% of Americans are now working to build up their emergency savings, and one-third (34%) are rethinking how they manage their money because of the COVID-19 crisis.³ Despite the stresses we all face, there is no time like the present to start or revisit your financial plan.
 

Footnotes

1. Barron D. Why Doctors Are Drowning in Medical School Debt. Scientific American. July 15, 2019.

2. With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation. The triple tax advantages are only applicable if the money is used to pay for qualified medical expenses as described in IRS Publication 969.

3. Fidelity Market Sentiment Study presents the findings of a nationwide online survey consisting of 3,012 adults, at least 18 years of age, from which 1,591 respondents qualified as having at least one investment account. The study was fielded April 1-8, 2020, by ENGINE INSIGHTS, an independent research firm not affiliated with Fidelity Investments. The results of this survey may not be representative of all adults meeting the same criteria as those surveyed for this study. For the purposes of this study, the generations are defined as follows: Millennials (aged 24-39 years); Generation X (aged 40-55 years); Baby Boomers (aged 56-74 years).

Mr. Tudor is Vice President, Wealth Planning Consultant at Fidelity Investments.

As COVID-19 continues to threaten the United States and the world, individuals in every profession have been challenged to examine their financial situation. At Fidelity Investments, we recently conducted a national survey asking people how current events have affected their opinions and behaviors when it comes to their money. The results showed that six in 10 Americans are concerned about household finances over the next 6 months. Unfortunately, we’ve seen that even health care professionals have not been financially spared, with salaries or benefits cut or, worse, furloughs and layoffs as hospital systems struggle. I work with many physicians, including gastroenterologists, in my role as a wealth planner for Fidelity Investments and have received quite a few questions related to shoring up family finances during these difficult times.

Luckily, the financial best practices that I share in “good” times ring true even in today’s world, with a few additions given the health and economic risks created by COVID-19.

1. Review your budget. It’s one thing to know that your budget is generally balanced (the dollars you spend are less than the dollars you earn). But it’s worth taking a closer look to see just where those dollars are going. In times of uncertainty, cutting back on expenses that aren’t necessary or don’t provide meaningful value to your life can be worthwhile. If you or your family have lost income because of the pandemic, you might consider these seven simple tips to help boost your cash flow.

2. Tackle (or find relief from) student loan debt. Doctors today graduate medical school with a median debt of just under $195,000.¹ Repaying these loans is daunting, particularly during the COVID-19 crisis. The recent passing of the CARES Act recognizes these difficult times: in fact, it automatically suspended required minimum loan payments and interest accrual on federal student loans until Sept. 30, 2020. This only applies to federal student loans, not private student loans. Beyond this period, if you are still struggling with payments, you may explore the possibility of refinancing, by taking out a lower-interest private loan and using that to pay off student loans (although this may extend the life of your loan). Borrowers could also consider other programs, such as REPAYE (Revised Pay As You Earn) through which your monthly payment tops out at 10% of your monthly income, or Public Service Loan Forgiveness (PSLF) if you work for a not-for-profit hospital or other qualifying employer. This program forgives the remaining balance on your direct loans after you have made 120 qualifying monthly payments while working full-time for a qualifying employer.

Additionally, borrowers could look for opportunities to reduce accrued interest, either by refinancing to a lower rate or making payments every 2 weeks rather than once each month.

3. Evaluate your emergency fund. It’s a good idea to keep 3-6 months’ of essential expenses in cash or cash-like investments. If you don’t yet have this 3- to 6-month cushion saved, now is a good time to work to reduce your expenses and stash away any extra cash.

4. Save early and often for retirement. You can borrow money to support many of life’s needs, from housing, to cars, to college. But you can’t borrow for retirement. That is why I encourage clients to put retirement savings at the top of the list, after accounting for day-to-day needs of their families. People often ask me whether it makes sense to continue saving for retirement, often a far-off goal for younger doctors, especially in these uncertain times. My answer? Yes. If you are able to save, continue to save: the earlier you begin to make contributions to your retirement account, and the longer you continue to do so, the more your retirement account(s) have the potential to grow over time.

Another question I receive is whether to take distributions from a retirement account early if you find yourself in a precarious financial situation because of the COVID-19 crisis. The CARES Act provides options allowing Americans to take a withdrawal or loan from a participating retirement plan if you, your spouse, or your dependent have a COVID-19 related illness or you’re experiencing a loss of income related to the COVID-19 pandemic. Try to look at alternative sources of income before tapping your hard-earned retirement savings. If you can find a way to continue saving and avoid drawing down your retirement accounts, your future self will thank you.

 

5. If you have a high-deductible health plan that offers it, explore a Health Savings Account (HSA). One of the most important factors in a solid financial plan is knowing how to pay for health care expenses, both now and as we age. HSAs are a tax-advantaged account that can be used to save money for qualified medical expenses. They are considered to provide a “triple-tax advantage” since contributions, qualified withdrawals, and investment growth are all tax-free.² The dollars in these accounts can stay there over time, so in years with low expenses you could use these to save for health care in retirement, while in other years they can be used to pay necessary medical bills. HSAs require the participant to be enrolled in a high-deductible health plan, so you would first need to verify that your employer provides this option.

6. Be prepared to protect yourself, your practice, and your family. Typically, I encourage the medical professionals I work with to review their current insurance plans (such as disability, life, and malpractice) to determine whether they have the right levels of coverage for their situation. With COVID-19 layered on top of the usual level of risk, it’s important to consider reviewing or updating other key elements of your family’s plan, like your health care proxies and a living will.

7. Put your income to work. When your disposable income grows, and you’ve covered all of the foundational elements of a financial plan (a rainy-day fund, contingency planning for health care costs, and so on), it might be the right time to consider investing for something other than retirement. As you do that, be sure you are invested in a diversified strategy with a balance of risk and return that is comfortable for you.

Recent market volatility can bring nerves that make it difficult to stay invested. However, as long as your risk tolerance and time horizon reflect your asset allocation – the mix of stock, bonds, and cash (which a financial planner can help with) – you can take comfort in knowing that historically every severe downturn has eventually given way to further growth.

During uncertain times like these, I think the best guidance is to focus on what you can control. The considerations above are a great place to start building a financial plan to solidify you and your family’s future. A Fidelity survey found that 44% of Americans are now working to build up their emergency savings, and one-third (34%) are rethinking how they manage their money because of the COVID-19 crisis.³ Despite the stresses we all face, there is no time like the present to start or revisit your financial plan.
 

Footnotes

1. Barron D. Why Doctors Are Drowning in Medical School Debt. Scientific American. July 15, 2019.

2. With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation. The triple tax advantages are only applicable if the money is used to pay for qualified medical expenses as described in IRS Publication 969.

3. Fidelity Market Sentiment Study presents the findings of a nationwide online survey consisting of 3,012 adults, at least 18 years of age, from which 1,591 respondents qualified as having at least one investment account. The study was fielded April 1-8, 2020, by ENGINE INSIGHTS, an independent research firm not affiliated with Fidelity Investments. The results of this survey may not be representative of all adults meeting the same criteria as those surveyed for this study. For the purposes of this study, the generations are defined as follows: Millennials (aged 24-39 years); Generation X (aged 40-55 years); Baby Boomers (aged 56-74 years).

Mr. Tudor is Vice President, Wealth Planning Consultant at Fidelity Investments.

As COVID-19 continues to threaten the United States and the world, individuals in every profession have been challenged to examine their financial situation. At Fidelity Investments, we recently conducted a national survey asking people how current events have affected their opinions and behaviors when it comes to their money. The results showed that six in 10 Americans are concerned about household finances over the next 6 months. Unfortunately, we’ve seen that even health care professionals have not been financially spared, with salaries or benefits cut or, worse, furloughs and layoffs as hospital systems struggle. I work with many physicians, including gastroenterologists, in my role as a wealth planner for Fidelity Investments and have received quite a few questions related to shoring up family finances during these difficult times.

Luckily, the financial best practices that I share in “good” times ring true even in today’s world, with a few additions given the health and economic risks created by COVID-19.

1. Review your budget. It’s one thing to know that your budget is generally balanced (the dollars you spend are less than the dollars you earn). But it’s worth taking a closer look to see just where those dollars are going. In times of uncertainty, cutting back on expenses that aren’t necessary or don’t provide meaningful value to your life can be worthwhile. If you or your family have lost income because of the pandemic, you might consider these seven simple tips to help boost your cash flow.

2. Tackle (or find relief from) student loan debt. Doctors today graduate medical school with a median debt of just under $195,000.¹ Repaying these loans is daunting, particularly during the COVID-19 crisis. The recent passing of the CARES Act recognizes these difficult times: in fact, it automatically suspended required minimum loan payments and interest accrual on federal student loans until Sept. 30, 2020. This only applies to federal student loans, not private student loans. Beyond this period, if you are still struggling with payments, you may explore the possibility of refinancing, by taking out a lower-interest private loan and using that to pay off student loans (although this may extend the life of your loan). Borrowers could also consider other programs, such as REPAYE (Revised Pay As You Earn) through which your monthly payment tops out at 10% of your monthly income, or Public Service Loan Forgiveness (PSLF) if you work for a not-for-profit hospital or other qualifying employer. This program forgives the remaining balance on your direct loans after you have made 120 qualifying monthly payments while working full-time for a qualifying employer.

Additionally, borrowers could look for opportunities to reduce accrued interest, either by refinancing to a lower rate or making payments every 2 weeks rather than once each month.

3. Evaluate your emergency fund. It’s a good idea to keep 3-6 months’ of essential expenses in cash or cash-like investments. If you don’t yet have this 3- to 6-month cushion saved, now is a good time to work to reduce your expenses and stash away any extra cash.

4. Save early and often for retirement. You can borrow money to support many of life’s needs, from housing, to cars, to college. But you can’t borrow for retirement. That is why I encourage clients to put retirement savings at the top of the list, after accounting for day-to-day needs of their families. People often ask me whether it makes sense to continue saving for retirement, often a far-off goal for younger doctors, especially in these uncertain times. My answer? Yes. If you are able to save, continue to save: the earlier you begin to make contributions to your retirement account, and the longer you continue to do so, the more your retirement account(s) have the potential to grow over time.

Another question I receive is whether to take distributions from a retirement account early if you find yourself in a precarious financial situation because of the COVID-19 crisis. The CARES Act provides options allowing Americans to take a withdrawal or loan from a participating retirement plan if you, your spouse, or your dependent have a COVID-19 related illness or you’re experiencing a loss of income related to the COVID-19 pandemic. Try to look at alternative sources of income before tapping your hard-earned retirement savings. If you can find a way to continue saving and avoid drawing down your retirement accounts, your future self will thank you.

 

5. If you have a high-deductible health plan that offers it, explore a Health Savings Account (HSA). One of the most important factors in a solid financial plan is knowing how to pay for health care expenses, both now and as we age. HSAs are a tax-advantaged account that can be used to save money for qualified medical expenses. They are considered to provide a “triple-tax advantage” since contributions, qualified withdrawals, and investment growth are all tax-free.² The dollars in these accounts can stay there over time, so in years with low expenses you could use these to save for health care in retirement, while in other years they can be used to pay necessary medical bills. HSAs require the participant to be enrolled in a high-deductible health plan, so you would first need to verify that your employer provides this option.

6. Be prepared to protect yourself, your practice, and your family. Typically, I encourage the medical professionals I work with to review their current insurance plans (such as disability, life, and malpractice) to determine whether they have the right levels of coverage for their situation. With COVID-19 layered on top of the usual level of risk, it’s important to consider reviewing or updating other key elements of your family’s plan, like your health care proxies and a living will.

7. Put your income to work. When your disposable income grows, and you’ve covered all of the foundational elements of a financial plan (a rainy-day fund, contingency planning for health care costs, and so on), it might be the right time to consider investing for something other than retirement. As you do that, be sure you are invested in a diversified strategy with a balance of risk and return that is comfortable for you.

Recent market volatility can bring nerves that make it difficult to stay invested. However, as long as your risk tolerance and time horizon reflect your asset allocation – the mix of stock, bonds, and cash (which a financial planner can help with) – you can take comfort in knowing that historically every severe downturn has eventually given way to further growth.

During uncertain times like these, I think the best guidance is to focus on what you can control. The considerations above are a great place to start building a financial plan to solidify you and your family’s future. A Fidelity survey found that 44% of Americans are now working to build up their emergency savings, and one-third (34%) are rethinking how they manage their money because of the COVID-19 crisis.³ Despite the stresses we all face, there is no time like the present to start or revisit your financial plan.
 

Footnotes

1. Barron D. Why Doctors Are Drowning in Medical School Debt. Scientific American. July 15, 2019.

2. With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation. The triple tax advantages are only applicable if the money is used to pay for qualified medical expenses as described in IRS Publication 969.

3. Fidelity Market Sentiment Study presents the findings of a nationwide online survey consisting of 3,012 adults, at least 18 years of age, from which 1,591 respondents qualified as having at least one investment account. The study was fielded April 1-8, 2020, by ENGINE INSIGHTS, an independent research firm not affiliated with Fidelity Investments. The results of this survey may not be representative of all adults meeting the same criteria as those surveyed for this study. For the purposes of this study, the generations are defined as follows: Millennials (aged 24-39 years); Generation X (aged 40-55 years); Baby Boomers (aged 56-74 years).

Mr. Tudor is Vice President, Wealth Planning Consultant at Fidelity Investments.