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June 3, 2020

How to Weather the COVID-19 Financial Storm in Your 40s and 50s

How to Weather the COVID-19 Financial Storm in Your 40s and 50s

Updated on June 3, 2020; 10am ET.

The COVID-19 pandemic has had a major impact on Americans in their 40s and 50s. More than half of Generation X workers have experienced layoffs, furloughs, reduced hours or salary cuts, according to the 2020 Transamerica Retirement Survey of Workers. As a result, many are struggling financially, unable to save and having trouble simply paying everyday expenses.

It’s not surprising that 67 percent of respondents in this age group report feeling worried about their retirement funds, too, with 24 percent noting they are “very worried” that the U.S. will enter an extended recession. This according to Sharecare’s “Flatten the Curve” survey of more than 117,00 respondents, including 45,730 between the ages of 40 and 59, received between April and early June. 

The everyday economic trials of Gen X
Middle-aged workers face some unique financial challenges, even in normal times. Fifty-six percent of Transamerica survey respondents say they still haven’t recovered financially from the 2008 recession. Nearly half have mortgages and more than half have credit card debt. Sixteen percent of adults over 45 are still paying off student loans.

That’s not all. Millions of Gen Xers are raising young children, helping older kids through college or housing them as adults. Millions of others provide financial or physical help to aging parents; 36 percent have been or are currently caregivers, according to Transamerica. Many do both at once—support their kids and care for older parents.

These everyday financial pressures combined with new, pandemic-related troubles are putting the squeeze on many middle-aged Americans like never before. If you’re feeling the pressure, a few basic tactics can help you get a handle on your money during the crisis—and even come out ahead.

Get a clearer economic picture
To take control of your cash, you need to know what you have and where it’s going. Start with a financial fire drill to figure out where things actually stand. Your household might be in better shape than you think.

If you get laid off or even just have your hours cut, apply for unemployment. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, many people who normally wouldn’t be eligible—including freelancers and those in the gig economy—might be able to draw unemployment benefits.

Next, learn about your debt options. Many credit card and loan issuers are offering options like lowered interest rates or a temporary pause on repayment, called forbearance. Federal student loans are in administrative forbearance through September, and some issuers of private student loans are offering pandemic-related relief, as well.

Temporarily paying out less for loans each month lets you build a bigger emergency fund in case your household loses income later on. Annelise Bretthauer, a Certified Financial Planner (CFP) in Hillsboro, Oregon, suggests having at least three and preferably six months’ worth of household expenses in the bank. Single-income households should aim for nine months’ worth, she says.

Start slashing family expenses
You’ve taken stock of your financial situation, and now comes the tough part: Cutting back. “Basic” expenses can be hard to trim if you’re not only feeding teenagers or young adults, but also covering expenses like cellphones, auto insurance or rent if they live somewhere else.

It could be a difficult decision, but you may want to consider easing off non-essential help for your parents, too.

“You have to be able to set that boundary: ‘Here’s the amount I can afford to help you,’” says Ian Bloom, a CFP in Raleigh, North Carolina. For example, you might keep buying groceries but temporarily stop paying for an extra TV subscription service.

Try ‘a new arrangement’
According to a 2019 analysis from the Pew Research Center, about 6 in 10 parents are giving at least some financial help to their young adult children. Delia Fernandez, a CFP in Los Alamitos, California, suggests that live-in offspring should now return the favor, either by cutting back on extras or contributing their own cash to the household, perhaps via a smartphone plan or a Costco run.

Phase it as the next step in their development as adults, she recommends: “‘Kids, before the virus when everything was good we could do things like this. Now we have a new arrangement because things have changed.’”

Teenage children, who might not be able to work right now, could contribute by helping with cooking, cleaning, yard work and pet care. Or by adapting their notions of what’s “necessary.” For example, they could agree to cut back on in-app purchases or Amazon Prime movie rentals. A lot of spending happens “on autopilot,” according to Fernandez.

Note: If you’re in a pinch, you should also stop contributing to your kids’ college plans. If need be, your kids could take out student loans to make up for any shortfalls in their college savings.

What about retirement?
Traditionally, “stay the course” is the investment tactic for middle-aged adults. And leaving your hands off the money already invested in a retirement plan is recommended by many financial experts. Doing this will likely result in greater returns than if those retirement dollars were in savings accounts or certificates of deposit.

But pandemic-related uncertainty has caused some CFPs to offer a bit of non-traditional advice: Stop saving for the future.

“This is not the time,” says Fernandez. “If they can’t afford to pay their regular bills in order to survive, they shouldn’t be saving for retirement. I don’t want people putting money in a 401(k) for retirement and later on filing for bankruptcy.”

If your household hasn’t lost income and you want (or need) to have more cushion in your emergency fund, a pared-down version of retirement savings might be possible, according to Los Angeles CFP Michael Izbotsky.

For example, if you’d been putting $200 a month into an individual retirement account (IRA), you might now opt to contribute $25 or $50 toward retirement just to “keep your good habits established,” Izbotsky says. The other $150 to $175 could go into savings for the time being.

Another tactic, says Bretthauer, is to “start re-imagining retirement.” Think about what might need to change if pandemic-related job loss lingers. Perhaps you could work longer than age 65 or work part-time between 65 and 70 to build financial security.

“Create a Plan A, a Plan B and a Plan C to account for the uncertainty of what lies ahead,” she adds.

Retirement might look different than you thought it would and that can be scary. But for now, these are just exercises. Your financial picture could change significantly in a few years, or even one year. The good news is that middle-aged workers still have plenty of time to make up for retirement savings they may lose during the pandemic.

Moving forward
In the meantime, create and live within a budget, build cash reserves and make smart choices with available funds, while planning to save for retirement when times are better. You still have options, even though you can’t control the market or your employment status.

“What you can control are the decisions and optimizations you make for your financial life at this time,” Bloom says.

“It’s foolish to ever assume that your path toward a goal is going to be a straight line,” he adds. “Life, regardless of whether there’s a pandemic, will always throw curveballs at you. It’s important to have an eye for the long term.”

Sources:

Transamerica Center for Retirement Studies. “Retirement Security Amid COVID-19: The Outlook of Three Generations: 2020 Transamerica Retirement Survey of Workers.” May 2020.
PayScale. “Earnings peak at different ages for different demographic groups.” June 4, 2019.
“5 facts about student loans.” Pew Research Center. August 13, 2019.
Pew Research Center. “Majority of Americans say parents are doing too much for their young adult children.” October 23, 2019.
Anna Helhoski. “Private student loan relief for borrowers in the coronavirus crisis.” NerdWallet. March 31, 2020.

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