Financial Planning in the Time of Coronavirus

Overview and Introduction: Unemployment and the Negative Feedback Loop

As the coronavirus pandemic devastates countries around the globe, the reverberations of
economic uncertainty are reflected in American unemployment rates. From February to May
2020, the US unemployment rate shot up from 6.2 million (3.8%) to 20.5 million (13.0%), even
with a sharp decline in labor force participation likely understating unemployment. Such a
degree of unemployment is highly unprecedented in the US economy—even during the Great
Recession, unemployment peaked at 10.6% in January 2010, a number considerably less than
peak estimates during COVID-19. [1]

Even as markets begin to rebound and growth is returning to various sectors, the short-term
outlook for the average American is still somewhat uncertain. A combination of unemployment,
business closures, quarantine practices, and other factors have all contributed to a looming sense
of financial distress in the economy. This feeling of vulnerability has dissuaded Americans from
spending and spurred a savings glut. The personal savings rate [2] reached a high of 33% in April,
according to the Bureau of Economic Analysis (BEA)—the highest since the BEA began using
this statistic in the 1960s and nearly double the previous record high of 17.3% in May 1975. [3]

Given that consumer spending usually accounts for more than two-thirds of the American
economy, this savings glut indicates a massive restructuring in the way the American economy
operates. As consumptions slows, small businesses already damaged by COVID-19 will have an
increasingly difficult time reopening without cash inflow. Furthermore, as Americans hold onto
their dollar instead of investing, downwards pressure is put on interest rates, making borrowing
sluggish and further slowing the hopes of an economic revival. Essentially, COVID-19 has
created a negative feedback loop—as Americans panic, the hope of a quick economic
revitalization gets increasingly feeble. Therefore, for the American economy to rebound,
American consumer sentiment must return first. Rather than panicking, the individual American
needs to stay diligent and learn how to effectively navigate the coronavirus financial landscape.

The CARES Act and Other Government Relief Resources

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in late March as
a way of alleviating the strain that coronavirus has had on the American economy. While many
Americans are aware of the $1200 stimulus check provided, fewer are aware of other benefits
that the CARES Act provides.

Expanded Unemployment Benefits

Especially as the $600 in additional Unemployment Compensation benefits reaches its July 31st
expiration, it is important to be aware of what additional unemployment benefits people qualify
for.

• The number of weeks you can receive benefits for depends on state law. For New York
  State, unemployed individuals may receive 26 weeks of unemployment from the state.
  However, individuals may be eligible for an additional 13-20 weeks of unemployment
  (13 in New York state) under the Pandemic Emergency Unemployment Compensation
  Program, available until December 31st
• In addition to these programs, individuals who have been directly affected by COVID-19
  (e.g. COVID-19 diagnosis, job loss due to COVID-19, quarantined by a medical or
  government body, etc.) may apply for additional benefits after exhausting both the
  aforementioned state and federal benefits. If your state verifies that you are not eligible
  for regular unemployment benefits, you may qualify for Pandemic Unemployment
  Assistance, you may receive an additional 13 weeks from this program.
• Though often excluded from traditional state unemployment, self-employed workers,
  independent contractors/gig workers, and people who have not worked long enough to
  qualify for traditional unemployment may be qualify for unemployment benefits during
  the COVID-19 pandemic. [4]

Withdrawing from Savings

While withdrawing from savings and retirement accounts should be a last resort, many
Americans with dire financial situations may be forced to due to new financial pressures. Under
the CARES Act, the IRS has released some restrictions on early withdrawals from 401(k), 403
(b), and IRA accounts for individuals affected by COVID-19 (or with affected spouses).
The usual 10% penalty for early withdrawals (individuals up to 59 ½) is now waived for
emergency withdrawals of up to $100,000.

• While income tax on withdrawals still applies, individuals can spread the income tax over
  a three-year period.
  • Ex: If you withdraw $12,000 from your retirement account, you may report $4000
    in income for your 2020, 2021, and 2022 tax returns. The option of including the
    entirety of your income tax on the year of withdrawal (2020) is still available.
• If you repay a corona-related withdrawal from an eligible account within three years, the
  withdrawal will be treated as if it were repaid in a trustee-trustee transfer, meaning
  federal income tax on the withdrawal will not be owed.
  • Ex: You make a withdrawal in 2020, and spread the income over a 2020, 2021, and 2022. If you repay the full amount of the withdrawal in 2022, you may file amended returns for 2020 and 2021, and claim a tax refund for the prior years. [5]

Relief for Students, Renters, and Homeowners

There are various other federal relief factors that meant to alleviate financial strain on the
average American.

• Until September 30th, Federal student loans are automatically being placed on
  administrative forbearance, allowing students to stop making monthly loan repayments.
  Students can still choose to repay on time, despite this suspension. 6
• There are two main protections for homeowners with federally or government-sponsored
  entity-backed (Fannie Mae or Freddie Mac) properties.
  •  A lender or loan servicer may not foreclose on you until at least August 31st. [7]
  • In the case of financial hardship due to coronavirus, borrowers may shift missed
    payments to the end of their mortgage for 180 days with no penalties or fees.
    Borrowers may even qualify an additional 180-day forbearance for a total of up to
    360 days. [8]

How to Be Proactive

Aside from taking advantage of government relief programs, there are other ways in which
Americans may restructure their personal finances to alleviate financial stress. While not very
well publicized, many companies are offering waivers or delays in repayment.

Credit Card Companies

Many large credit card companies including major players such as American Express, [9]
Discover,[1]0 and Citibank [11] are offering some form of forbearance or interest rate change for their
clients impacted during COVID-19.

• While it is important to note that you may be required to repay interest that accrues
  during your deferral period, these financial penalties tend to be cheaper and better for
  credit rating scores than missing a payment.
• To learn more about these programs, credit card holders should contact their provider and
  inquire about available relief programs

Internet and Phone Service Providers

Phone service providers are also taking proper steps to ensure they retain consumers during the
COVID-19 pandemic.

• For the rest of 2020, Verizon has created a low-income discount program of $20 a month,
  bringing the cost as low as $19.99 a month for their internet services. [12]
• AT&T has claimed that they would not suspend broadband usage caps for home internet
  customers, meaning overcharge fees are waived.
• AT&T is also providing an internet plan specifically for low-income households for $10
  a month.[13]
• Various late fees and cancellations are being waived for many different companies.
  Customers should contact their provider and ask what options are available to them.

Conclusion – Do Not Panic, Be Informed and Stay Diligent

The bottom line is this—COVID-19 has brought great uncertainty to the realm of personal
finance. With the amount of information circulating the news and media, it can be difficult to
ascertain what measures individuals should take live properly while still being cautious.
However, more than ever, Americans need to pay closer attention to their own finances and
spending habits. While the situation may seem dire at times, Americans should remember that
they are in this together, and take advantage of the many opportunities being provided by both
private companies and the government.

1 Kochhar, Rakesh. “Unemployment rose higher in three months of COVID-19 than it did in two years of the Great
Recession.” Pew Research Center. 11 June 2020, 23 July 2020. <https://www.pewresearch.org/facttank/2020/06/11/unemployment-rose-higher-in-three-months-of-covid-19-than-it-did-in-two-years-of-the-greatrecession/> Accessed 23 July 2020.
2 The personal savings rate is the amount that people save as a percentage of their disposable income.
3 Fitzgerald, Maggie. “US Savings Rate Hits Record 33% as Coronavirus Causes Americans to Stockpile Cash, Curb
Spending.” CNBC, 29 May 2020. <https://www.nbcphiladelphia.com/news/business/us-savings-rate-hits-record-33-
as-coronavirus-causes-americans-to-stockpile-cash-curb-spending/2411806/> Accessed 23 July 2020.
4 Gilbert, Gay. “4 Things to Know About Unemployment Benefits Under the CARES Act.” U.S. Department of
Labor Blog, 11 May 2020. <https://blog.dol.gov/2020/05/11/4-things-to-know-about-unemployment-benefits-underthe-cares-act> Accessed 23 July 2020.
5 “Coronavirus-related relief for retirement plans and IRAs questions and answers.” Internal Revenue Service, 4
May 2020. <https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-andanswers> Accessed 23 July 2020.
6 “Coronavirus and Forbearance Info for Students, Borrowers, and Parents.” Federal Student Aid Office,
<https://studentaid.gov/announcements-events/coronavirus> Accessed 23 July 2020.
7 “HUD Provides Immediate Relief for Homeowners Amid Nationwide Coronavirus Response.” Department of
Housing and Urban Development, 18 March 2020.
<https://www.hud.gov/press/press_releases_media_advisories/HUD_No_20_042> Accessed 23 July 2020.
8 “Learn about mortgage relief options and protections.” Consumer Financial Protection Bureau, 1 July 2020.
<https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/mortgage-relief/> Accessed 23
July 2020.
9 “American Express Financial Relief Program.” American Express,
<https://www.americanexpress.com/us/customer-service/financial-relief.html> Accessed 23 July 2020.
10 White, Alexandria. “Discover cardholders may receive support for bill due dates, fees, and late payments if
affected by coronavirus.” CNBC, 20 April 2020. <https://www.cnbc.com/select/discover-coronavirus-assistance/>
Accessed 23 July 2020.
11 “Assistance for Customers Impacted by Coronavirus.” Citibank,
<https://online.citi.com/US/JRS/pands/detail.do?ID=covid19> Accessed 23 July 2020.
12 Adria & Kameka. “Verizon extends low-income internet offer through 2020.” Verizon, 9 July 2020.
<https://www.verizon.com/about/news/verizon-extends-low-income-internet> Accessed 23 July 2020.
13 “COVID-19: Our Response.” AT&T, <https://about.att.com/pages/COVID-19.html> Accessed 23 July 2020.

Craig J. Ferrantino is a Registered Representative offering Securities and Advisory Services through
UNITED PLANNERS FINANCIAL SERVICES, Member FINRA, SIPC. Craig James Financial Services, LLC and United
Planners are not affiliated