COVID’s Financial Toll Isn’t What You Think

From a grandma’s retirement in ruins to a troubled teen inheriting too soon, COVID’s effects will last for generations. While nothing can prepare you for the pain of losing someone you love, a financial planner explains how preparation can lessen the financial devastation.

A father and his toddler daughter look solemn.
(Image credit: Getty Images)

Just a few years ago, Rose retired with a decent-sized 401(k). With some careful budgeting and a part-time job, her retirement finances were on track. Rose was looking forward to traveling, reigniting her passion for photography and spending time with her son and her grandkids.

The pandemic changed everything. Her son contracted COVID-19 in the early days of the pandemic. His health deteriorated quickly and he died at only 35 years old. He didn’t have life insurance. A gig worker without a 401(k), he had very minimal retirement savings.

Rose’s grandchildren, ages 2 and 6, joined the more than 140,000 U.S. children under the age of 18 who lost their primary or secondary caregiver due to the pandemic from April 2020 through June 2021. That’s approximately one out of every 450 children under age 18 in the United States.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Rose’s ex-daughter-in-law battles drug addiction and had lost custody of the kids during the divorce, so Rose became the children’s primary caregiver. She quickly discovered that caring for young children as an older adult is more physically challenging than when she raised her son, so she made the difficult decision to leave her part-time job to have the energy to care for her active grandchildren. She wants to do everything for these kids who have lost so much — but it puts her financial security at risk.

Sadly, she is far from alone.

The elderly continue to suffer the highest COVID death rates, but the death rate for younger people has disproportionally increased. The death rate for 74- to 84-year-olds increased 16% due to the pandemic. For 35- to 45-year-olds, it jumped 24.5%, according to the Centers for Disease Control and Prevention. Other age groups had similar increases.

Scott Davison, CEO of insurer and retirement company OneAmerica, says that among working people — those 18 to 64 years old — death rates are up 40%. “Just to give you an idea of how bad that is, a three sigma or 200-year catastrophe would be a 10% increase over pre-pandemic levels,” Davison says. “Forty percent is just unheard of.”

From grandparents now raising grandchildren to beneficiaries suddenly having to manage an unexpected inheritance, to the loss of a family wage earner, the pandemic’s financial reverberations can last generations.

An Inheritance Too Soon

Susan and her husband have faced their fair share of financial difficulties, including suffocating credit card debt and a foreclosure on their home. When Susan’s mother died from COVID, she received a $450,000 inheritance. Susan went from living paycheck to paycheck to having a financial safety net.

Susan is also paralyzed by guilt. She has immediate financial needs, but is emotionally unable to act, unsure how her mother would want her to use the money.

On the other hand, a young man named Brandon experienced a different type of grief-induced problem. Brandon’s parents divorced when he was young, and his father’s death from complications due to COVID when Brandon was only 19 hit him hard. As the sole beneficiary of his dad’s estate, Brandon now had access to close to $1 million in assets. Without financial guidance and fueled by a party lifestyle, a love of fancy and expensive toys, and some very poor investment decisions, Brandon quickly tore through hundreds of thousands of dollars. Brandon just didn’t have the intellectual or the emotional capacity to handle unexpected wealth.

Of course, it’s not just the young who have difficulty holding onto wealth. We’ve all heard or read stories about lottery winners who win millions and wind up broke.

The only thing that stopped Brandon from wasting his entire inheritance was that he was arrested for drinking and driving, attended therapy and turned his life around.

The Long Haul

For the past six months, long after he was hospitalized with COVID, Ed has experienced chronic fatigue and shortness of breath. He has trouble sleeping, and “brain fog” impacts his performance at the small technology firm where he works. He often misses work. Some days, Ed can barely get out of bed.

He’s worried that he will lose his job and fears never being able to return to work. Ed is panicked that he’ll lose his health insurance at a time when he needs it the most.

Thankfully Ed’s employer offers long-term disability (LTD) insurance as part of its benefits package — but it only replaces 60% of Ed’s pre-tax salary. Even as part of a dual-income household, Ed’s LTD benefits are not enough to cover his family’s living expenses.

Ed has good reason to be concerned about joining the 11 million Americans who owe more than $2,000 in medical debt and the 3 million who owe more than $10,000.

What to Do Today to Prepare for a Loss of a Wage-Earner

The pandemic was a wake-up call for many of us. Rose, Susan, Brandon and Ed are suffering in many ways; my goal is to help minimize the financial anguish of those impacted by COVID-19 by offering a few recommendations.

1. Protect Your Wealth with a Spendthrift Trust

Parents often believe that their children will automatically inherit their money management and budgeting skills. But that won’t happen unless we talk to our kids about money — something few of us do.

Maybe we came from an impoverished background and, with lots of hard work and savvy financial planning, we have accumulated a fair amount of wealth. We strive to give our kids all the things we didn’t have. Our kids never learn financial discipline.

In wealthy families, 70% lose their wealth by the next generation, with 90% of families losing it the generation after that.

A spendthrift provision in a trust can both alleviate guilt like Susan experienced by clearly outlining how to use the assets as well as protect against Brandon’s wealth leakage. Under an irrevocable trust, you control how to distribute money to your heirs, either over a set period of time or on an as-needed basis, perhaps to purchase a home or to pay for education expenses. You can also design the trust to protect your heirs if they are in a profession that is prone to lawsuits.

I have had clients specify their child must have a full-time job to receive assets, or that they must attend AA meetings or continue to meet with a therapist. In some family situations, especially those with a history of drug or alcohol abuse, this is perfectly reasonable, and only you can decide how many controls to put in place.

However, spendthrift trusts don’t need to be complicated. For instance, Brandon’s dad could have specified that his son receives one-third of the trust at age 21, one-third at age 30 and the final third at age 35.

While it’s common to name a family member or close friend as executor, I recommend that clients also designate a corporate trustee, typically through a bank or a wealth management firm that partners with a corporate trustee, as co-executor. The trust has built-in checks and balances, and a family member doesn’t face the difficult task of enforcing the provisions. While the family member can replace a corporate trustee, they must name another corporate trustee to act as co-executor.

2. Protect Your Income with Long-term Disability Insurance and Save for Medical Expenses with an HSA

Life insurance provides a much-needed financial safety net in the event of death, but there are millions of Americans who survived their initial bout with COVID-19 yet continue to suffer long-term effects that impact their ability to earn a living.

The U.S. government estimates that Post-Acute Sequelae of SARS-CoV-2 (PASC) potentially impacts up to 23 million Americans. An estimated 1 million so-called “long haulers” are unable to work at any given time and 45% have been forced to reduce their work hours. They may lose their employer-sponsored health insurance at a time they are facing staggering medical bills.

More than 4 in 10 Americans would face financial hardship within only six months if they lost a primary wage earner, according to the 2021 Insurance Barometer study. One in four would struggle financially within one month. Just 39% of Americans surveyed say they could comfortably cover an unexpected expense of $1,000.

Having long-term disability coverage (LTD) through an employer makes Ed one of the lucky ones. According to the U.S. Bureau of Labor Statistics, only 35% of employees have access to LTD insurance through their employer.

Review your short-term disability and long-term disability policy to determine if the benefits are enough to cover your family’s living expenses while you are out of work. The standard replacement amount is 60%, but your policy may pay less, have a long waiting period, or cover a set amount of time.

Remember, you’ll need to pay taxes on benefits, which could significantly decrease the amount you have left to live on.

A private LTD insurance policy can help replace most of your lost income. Although you’ll never be able to replace 100%, a supplemental policy can provide around 80%-85% of your income, pre-tax.

Yes, you can get Social Security disability for COVID long haulers, but it is very difficult to qualify. I’ve seen approvals take two years or more.

If you have a high-deductible health plan, you can use a health savings account (HSA) to save pre-tax income for a wide range of medical expenses. Unlike a flexible savings account (FSA) where you have to “use it or lose it,” an HSA rolls over from year to year. If you change jobs or retire, the HSA goes with you.

3. Update Your Financial Plan and Explore Resources to Care for the Grandkids

It’s heartbreaking, but I’ve seen too many older people spend down their retirement or take a reverse mortgage on their home to provide for their grandchildren rather than exploring other options. For instance, the Social Security Administration or your state may provide benefits for children who have lost a parent.

Rose’s new financial responsibilities to her grandkids could easily derail her retirement. Thankfully, Rose reached out and we worked together to update her budget and her estate plan to include contingencies — like a trust — in case she dies before the grandchildren are financially independent. Rose didn’t have a life insurance policy because she didn’t have anyone financially dependent on her. She does now, so she purchased a life insurance policy to protect the grandkids.

Rose and I reviewed all of her estate documents, including her will, power of attorney and health care power of attorney, to make sure they are up to date and reflect her current wishes.

Rose also looked into financial help from other resources, including her local Child Care Resources and Referral agency, the Child Tax Credit payments established by the American Rescue Plan, the Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, Medicaid and subsidized early childhood programs, such as Early Head Start and Head Start.

Rose also found support from Hidden Pain, a bipartisan collaboration of health, education and economic leaders who are working with federal, state and local governments to create a coordinated response to helping families that have lost a caregiver.

A Bit of Good News

The global pandemic has touched all of us, directly or indirectly. For many of us, the pandemic was a mortality check and it caused us to commit not only to improve our physical health but our financial health as well. Northwestern Mutual found that one-third of Americans say their financial discipline has improved since the pandemic, and 95% expect those habits to stick.

The pandemic has also spurred renewed interest in life insurance policies: 31% of Americans say they are more likely to buy coverage due to COVID-19. Of those who tested positive for COVID-19, 42% say they are likely to purchase life insurance.

Long after this pandemic subsides, I’m hopeful that these healthy financial habits continue so that more of us will be prepared for unexpected tragedy.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Erin Wood, CFP®, CRPC®, FBSⓇ
Senior Vice President, Financial Planning, Carson Group

Erin Wood is the Senior Vice President of Financial Planning at Carson Group, where she develops strategies to help families achieve their financial goals. She holds Certified Financial Planner, Chartered Retirement Planning Counselor and Certified Financial Behavior Specialist designations.