Staying financially well in the time of COVID-19
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.
