Personal finance lessons from the pandemic

When you’re essentially confined to your house for weeks, you have a lot of time to think.

I thought most about preserving the health and safety of friends and family members. But soon I found myself obsessing about my own finances: Like so many others, I had a big problem.

As a freelance writer, I lost most of my income virtually overnight, putting me in the same situation as tens of millions of people whose paychecks vanished. Many people got government stimulus checks. I was not one of them.

Because I’ve followed the financial advice I’ve reported on for years, I wasn’t in terrible shape. I had an emergency fund and kept a respectable portion of my portfolio — about 35% — in medium-term bond mutual funds, which held up well while the stock market plummeted.

But now that things seem to be slowly inching toward normality, I am planning to learn from this crisis and do some major tweaking of my finances.

Here are the three things that are going to change:

I’ll try to keep even more cash on hand.

The standard personal finance advice is to have at least three months of living expenses stashed away in something liquid and ultrasafe, “just in case.” That made sense to me long before the coronavirus began to spread.

But I didn’t pay a lot of attention to the money I threw sporadically into my emergency fund, and I didn’t know how much I’d stashed there. Fortunately, when my phone stopped ringing and potential employers stopped answering my emails, I had more than four months of money squirreled away.

That was really good.

It was so important that I am going to try to get that number up to a year’s worth of reserves. (It’s going to take a while.) The goal is more to create peace of mind than to increase my net worth.

Yes, I know the money could earn more elsewhere than in the tax-free money-market fund where I am saving it. But, if I can help it, I never want to worry about meeting day-to-day expenses again. And if I end up enduring more than a year without earning much or any income, it will be time to do something else — or maybe retire.

I’ll manage my debt more aggressively.

I’ve always paid off my full credit card balances each month, so I have never had credit card debt, not even back when the interest was deductible (The Tax Reform Act of 1986 did away with that).

But I do have three mortgages: two (a conventional mortgage and a home equity loan) on our house in New Jersey, plus another mortgage on our small house in Cape Cod. They add up to a big monthly nut, something I kept pondering during all the time I was stuck at home.

When income was coming in on a regular basis, I always paid more than I had to each month on each mortgage because I considered prepaying a kind of forced savings. But I wasn’t particularly strategic about it. I just paid in random amounts, rounding up what was due. For example, if the mortgage payment was $3,772.16, I would write a check for $4,000, with the additional money going to pay down principal. I did that with all three loans.

The mortgages have different interest rates. From now on, I am going to put all extra payments toward the one with the highest interest rate, the home equity loan in New Jersey. That makes the most economic sense. (This assumes there will be enough money coming in to do this.)

Make a plan for Social Security benefits.

Before the pandemic, I never really thought about my potential Social Security benefits. I remember playing golf with a buddy nearly four years ago, and on the day I turned 62, he said, “Congratulations, you can now take Social Security.”

When I got home, I went to the Social Security website and discovered if I applied for benefits immediately, I would get 75% of the benefits I would receive at age 66, my “full retirement age.”

I didn’t apply. There was no reason to. I didn’t need the money, and I hated the idea of taking a 25% haircut. So about 10 minutes after logging off the website, I forgot all about it. But during my long quasi-lockdown, I realised that the money might come in handy, and I became curious about how much I might receive.

Well, if I can wait until age 66, which is right around the corner, I would receive about $3,000 a month, according to the retirement calculator on the Social Security website.

Even better, for every month I wait beyond age 66, the monthly benefit goes up 0.66%, which works out to be 8% a year. (For an excellent primer on how to think about applying for Social Security benefits today, see Mark Miller’s “Taking Social Security in the Pandemic: What to Know” which ran in The New York Times in April.)

Now, I am not going to be able to pay all my bills on the $3,000 a month I would receive from Social Security now, or even with the roughly $4,000 I would get if I delayed taking them until I turned 70. (There is no annual increase for delaying beyond that.)

But all this did trigger an interesting thought.

Suppose I quit work on the day I turn 67, a little more than a year from now. My monthly Social Security check would be an estimated $3,143 a month. And if I bought a $500,000 immediate annuity that started that day, I would receive another $2,612 a month, according to a projection, using current interest rates from ImmediateAnnuities.com, an independent site that tracks these things.

That’s a combined $5,755 a month, or about $69,000 a year. That would cover my basics and then some in Cape Cod, where I plan to retire. And it would still leave me some retirement savings that, hopefully, could grow through investments in stocks and bonds.

The numbers look a lot better if I don’t retire until I reach 70. Delaying Social Security until then would give me around $4,000 a month. And if I bought that $500,000 annuity in a few weeks, when I turn 66, and deferred taking payments until I turned 70, it would provide north of $3,400 a month, giving me nearly $89,000 a year.

I am going to keep playing with ways to combine my potential Social Security benefits with other ways to use my retirement savings to see what makes sense.

Why I need to save more.

You never buy insurance because you hope to submit a claim someday. You do it to protect against a time when something awful may happen.

I have always thought of saving money the same way. While it would be nice to spend it on something that would give me pleasure, there really isn’t anything important that I don’t already have.

But the pandemic has made me realise that I’m not sure how much I’ll really need to have salted away to protect my family and to keep our solidly middle-class standard of living intact, both now and into the future.

The crisis has made life much more challenging. But it has also strengthened my resolve.

c.2020 The New York Times Company