Q&A - How To Be Financially Resilient During The COVID-19 Pandemic

As news of the coronavirus continues to dominate economic, health, science, and political headlines, many Americans are feeling overwhelmed by the sheer volume of information — and unsure of its impact.

To break through the noise, USAA’s team of CERTIFIED FINANCIAL PLANNER^TM professionals are here to help us make the best decisions for ourselves and our families. Read on for their advice to your most pressing questions.

Q: I lost my job and am struggling to pay the bills. What should I do?

A: First, know that you aren’t alone. The number of people whose jobs have been affected grows every day — in fact, the Federal Reserve is projecting a potential 32% unemployment rate across the U.S. Whether you’ve lost or your job, have been furloughed, or asked to take a pay cut, there are several things you can do:

• Prioritize payments for your basic necessities. Make sure you have a roof over your head and food on the table.
• Review your budget. While some expenses — like gas and money for movies or concerts — have likely been reduced, others, such as utilities or supplies, have increased. Feel empowered to adjust your budget so that it reflects your current needs and take action to reduce unnecessary expenses.
• Explore temporary work options, starting with your local or state workforce commission. According to data from the recruiting site Glassdoor,¹ the top five roles with the most coronavirus-related openings include registered nurses, communications associates, social workers, project managers and technicians.

Q: How can I get help?

A: Ask for it. While this is a challenging time, it is not a time to be ashamed. Consider these options:

• Speak with your service providers to understand your options.
• Check with your financial institution to see if there are opportunities to help alleviate or postpone payments. See what USAA is doing to help its members.
• Know your resources. The following organizations can help:
• Benefits.gov: Disaster Relief, Healthcare and Medical Assistance, Financial Assistance, Loans, Unemployment, and more
• Local Food Bank
• Military and Family Readiness centers
• Department of Veterans Affairs
• National Foundation for Credit Counseling
• Consumer Financial Protection Bureau
• Your state’s workforce commission
• Small Business Administration Guidance & Loan Resources

Q: Now that I’m unemployed, I don’t have health insurance. What are my options?

A: Especially as we’re facing the threat of a health issue, it’s absolutely critical that you use this window of time to take action that will continue your health care coverage. The good news is, a change in employment creates what’s called a “qualified event” from a health care enrollment perspective. Consider these options:

• COBRA. Because COBRA acts as a continuation of your existing plan, your deductible is not reset when you switch over. And in most cases, you can keep your COBRA plan at least 18 months. Here’s the downside: Without your employer paying their portion, your premium will likely be higher.
• Health Care Exchange. All plans listed on the health care exchange are “qualified,” which means they cover essential health benefits and limit the amount of deductibles and co-pays for covered benefits. Visit www.healthcare.gov to explore what’s available in your marketplace — and what’s in your price range. Unlike Cobra, health care exchange plans are subsidized, so the same level of care may be more affordable.
• Short-term health plans: In 2018, new legislation allowed for the availability of short-term (anywhere from 364 days to 36 months) health care plans. However, there may be exclusions for preexisting conditions, so read the plan benefits and exclusions.
• Medicaid. Provides medical insurance at little or no cost to Americans based on their level of income in relation to the Federal Poverty Level. Determine your eligibility on www.healthcare.gov

Q: What’s in the CARES Act?

A: The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a massive economic relief bill designed to support individuals and businesses who’ve been affected.

For individuals, that relief comes in the form of a stimulus check. The amount is based off your most recent tax filing from either 2018 or 2019, but individuals may be eligible to receive up to $1,200 or $2,400 for married couples, and up to $500 for each qualifying child.

That figure is reduced for individual filers who have an adjusted gross income that tops $75,000 or $150,000 for married couples filing joint returns.

If your adjusted gross income is higher than $99,000 for individuals or $198,000 for married couples, you are no longer eligible for a stimulus check.

Q: I’m thinking of dipping into my 401(k). What do I need to know?

A: Because the economic landscape is constantly in flux, we encourage you to double-check all advice with your financial advisor or tax counselor. With that in mind, there are a few points to consider.

First: Your 401(k) is meant for your retirement — whether that’s tomorrow or 20 years from now. Preserve that money if at all possible.

Second: Under the current market circumstances, the price of your investments may be lower on paper. So, if you take a distribution for your plan right now, you could be locking in a loss. Ideally, you should consider other sources to help with current expenses before borrowing against your retirement plan.

However, we understand that the current needs may overcome that. Consider these allowances:

• Whereas loans from a qualified plan used to have a $50,000 limit, you can now borrow up to $100,000 tax-free, and the payment can be delayed. Remember, loans are tax-free unless you fail to repay. At which point a 10% penalty is due for those under 59½ years of age.
• If you qualify under the current situation because your health or employment has been impacted, actual distributions — not loans — from the plan are allowed. Normally, you would have to pay taxes and penalties, but because of the current landscape, you can withdraw up to $100,000 and without the 10% penalty normally applied to those under 59½.
• Required Minimum Distributions (RMDs) have been waived for 2020. The big question is, if you’ve already taken your RMD, can you put it back? This gets sticky, and the jury is still out from an IRS perspective. Check with your financial institution first to understand what’s involved.

Q: I’m in the military, and I’ve been asked to self-isolate on base. What kind of impact will that have for me, financially?

A: Even in the midst of a global pandemic, our nation still needs to be protected. We’re so grateful to our service members who are out there on the front lines.

Based on their occupation, certain military members have been isolated to the base and separated from their military families who live in the community. Because it looks like a deployment in many ways, we’re advising members to adhere to the same guidelines they follow when they’re deployed:

• Review your budget. Communicate what you’re spending with your partner, so you don’t accidently spend the same dollars.
• If you have money left over at the end of the month, use it to increase savings and pay down debt.
• If you find that you’re spending more than you normally do, revisit your budget and find ways to reduce expenses so that you don’t have to go into debt.

Many members of the National Guard and Reserves are being activated to respond to this crisis. When they leave their civilian jobs and go into their military job, some make more money. But many accept an income reduction.

Whatever camp you’re in, it’s a good idea to have two budgets: a civilian budget and a Reserve budget that you use when your income has been reduced. Consider creating a “Reserve Fund” — on top of your emergency fund —that you can use to supplement your income whenever you have an income reduction.

Q: I’m in the military, but I recently put in my separation orders. Given all that’s happening, is that a good idea?

A: The current economic uncertainty is certainly a data point that now affects your decision. Remember, we don’t know how long this could last. If you decide not to leave the military, you could be making a three- year commitment for your family based on a four-month bump in the road.

Consider all your options, which include the National Guard and Reserves. If you’re leaving active duty, that could give you an income source that bridges the gap until you transition into a civilian job.

Finally, consider alternative education and employment opportunities. If you had the perfect job lined up but it’s no longer available, you may need to be flexible. Look into online universities or explore temporary jobs until you find the right long-term solution.

Regardless of your next step, USAA believes in establishing a transition fund of 6 to 12 months of living expenses on top of your 3-month emergency fund. Not only will that money cover the gap between your last military paycheck and your first civilian paycheck, it will also help cover job search expenses and a civilian wardrobe.

¹https://www.glassdoor.com/research/coronavirus-related-jobs-surge/

Disclosures:

This material is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any specific product.

USAA believes the websites and resources used to gather this information are reliable; however, we cannot guarantee the accuracy or timeliness of the information.

USAA means United Services Automobile Association and its affiliates. Financial advice provided by USAA Financial Advisors, Inc. (FAI), a registered broker-dealer, USAA Investment Management Company (IMCO), a registered broker-dealer and investment adviser, and for insurance, USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # OE36312). Investment products and services offered by IMCO and FAI. Life insurance and annuities provided by USAA Life Insurance Co., San Antonio, TX, and in NY by USAA Life Insurance Co of New York, Highland falls, NY. Other life and health insurance from select companies offered through USAA Life General Agency, Inc. (known in CA (license #0782231) and in NY as USAA Health and Life Insurance Agency). Banking products offered by USAA Federal Savings Bank and USAA Savings Bank, both FDIC insured. Trust services provided by USAA Federal Savings Bank.

Use of the term "member" or "membership" refers to membership in USAA Membership Services and does not convey any legal or ownership rights in USAA. Restrictions apply and are subject to change.

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