Several weeks ago a couple came in to visit me, we’ll call them Mr. and Mrs. K. Mr. K had retired from the military and was working part time at a national home improvement store. Mrs. K was working full time in the healthcare industry as a nurse. Given her workplace requirements and in the abundance of caution we wore masks during the entire meeting.
During client review meetings, finances intersect real life. We talk about the economy and portfolios and tax consequences but we also talk about lifestyle, family and dreams about the future. Naturally, the Covid pandemic and its impact on their lives was a topic of discussion. What Mr. K said something about the lockdowns, the market volatility and the financial impact that made an impact.
“You know, Rey, people say we are in this together. But we’re not. My national home improvement store is doing huge numbers and I have all the hours I want. Of course, it doesn’t even matter because I’m on a pension that pays all my bills. I’m just working because I’m young and bored. Mrs. K is working more than she wants to. In fact, nurses are in high demand and if she changes employers she can name her price. Meanwhile, the mom and pop restaurant is suffering. The waitress at the theme parks is out of work. Small business are shutting down everywhere. We’re not in this together, some of us are just fine, some of us are getting destroyed.”
The reason Mr. and Mrs. K are doing well is because they have two things: Durable Income and Assets. Thanks to durable employment and a pension The K’s can endure the pandemic with relative ease. Because they have money invested they can buy things on sale and also partake in market growth. The pandemic has made the rich richer and the poor poorer.
Back in 2018 I wrote a blog Financial Peace is a Myth. 2020 has brought that into stark relief. It’s never been more true than now. Financial Peace is a myth, but financial fitness is a must. You can never completely relax and fall asleep at the wheel. You can’t set it and forget it when it comes to money.
However, there are several best practices that can increase your financial fitness and make you resilient if you are in retirement or preparing for retirement.
- If you’re still working, have 3 to 6 months of living expenses in savings at the bank. If retired, have 6 to 12 months of living expenses in savings.
- Find a job with a pension or create your own pension that creates durable income in a crisis.
- Be as debt free as possible. Ideally, you should have no credit card debt or mortgage in retirement. However, get your debt paid off to a point where the minimum payments are less than a third of your monthly expenses. This includes your mortgage.
- Don’t be passive. Crisis is an opportunity. Review your portfolio and speak with your advisor regularly especially during volatile times.
- Press pause on negotiable expenditures. Your budget has needs and wants. For a time being pause on the wants until the dust settles.
There are more things you can do and several reasons to start today. If you’d like to discuss this list click here.