Practical Advice for Clients Strapped for Cash

The COVID-19 pandemic has affected the population in different ways, especially in terms of work, with some people between jobs and others quitting or taking the freelance route. Others are stuck in jobs where the pay stayed the same while their expenses climbed. If you have clients like this, as both their accountant and as a friend concerned about their future, how can you help them?

This should not be a “tap into your reserve fund” conversation. Chances are, they did that long ago, and they have exhausted all the easy and obvious options. For example, you might have a client who was recently and unexpectedly widowed or a client whose house is in foreclosure. How can you help these clients?

Let us start with the assumption your client fits into one of the following three categories.

If Your Client Has No Assets

If your client is young, this is the most likely scenario, but it can apply to older clients, too. You have likely advised them to reduce their spending, and they complied, but they might need more help. Here’s some advice you can offer them. 

• Use the social safety net. If your client has absolutely no income, she might qualify for state aid. The Supplemental Nutrition Assistance Program (SNAP) is the successor to the food stamp program. The paper version has disappeared, now replaced with an EBT card. Gross monthly income must be at or below 130 percent of the poverty line to be eligible. The Center for Budget and Policy Priorities (CBPP) indicates for a family of three, 130 percent of the poverty line is $ 2,379/month or $28,550/year. Unemployment benefits, which vary by state, generally run about 26 weeks. Meanwhile, Medicaid provides health care benefits to low-income families.
• Use the informal social safety net. Religious organizations and social service agencies run local food pantries, and about half of the clientele are typically people who have been living paycheck to paycheck or have suffered a career setback. These places help people going through tough times.
• Take on an hourly job. There is a labor shortage. Will your client consider taking a job outside their chosen field? For example, Amazon has recently advertised that it’s willing to hire those who might not be eligible for other positions. The pay scale starts at $15/hour and includes benefits. According to Zip Recruiter, hourly workers at Amazon make between $25,000 and $63,000/year (in New Jersey). At Costco, long considered an excellent employer, salaries average $27,472/year (in Pennsylvania).
• Consider Uber and the gig economy. According to salary.com, Uber drivers make on average $36,270 a year. One advantage is that it can be done part time.
• Make a fresh start. If your client isn’t out of a job, but is stuck in a rut, the bunker mentality during the pandemic is telling them they should simply be grateful they have a job at all. Statistics show there is an average 9.8-percent salary increase for 25-34 year olds who change employers. The pay increase for people who stay with the same company, however, tends to average only about 3 percent.
• Dig into Social Security benefits. Everyone says you should wait, but many Americans choose to start collecting benefits early. The earliest age one can collect is 62, although the longer you wait, the larger your starting benefit. If your older client feels they won’t be getting another fulltime job, this is an option for guaranteed income.

Your client might be tempted to work “off the books,” but this is a bad move, even short term. The benefits reputable employers offer have considerable value. A person needs to work at least 40 quarters (10 years) to qualify for Social Security retirement benefits. If their employer skips out on paying them, their options are limited.

If Your Client Owns Their Own Home

• Access the home’s equity. Your client may already have a home equity line of credit, allowing them to take advantage of their home’s appreciation. According to Zillow, home prices increased, on average, 19.5 percent in 2021, and an 11-percent increase is expected in 2022. Your client may have access to more home equity than they think. However, keep in mind that about 20 percent of cash-out refinancing loans are denied, according to constructioncoverage.com.
• Try Airbnb. Approximately 660,000 U.S. homes are listed on Airbnb. Many Americans rent out rooms to travelers seeking an alternative to hotels. While some communities have put restrictions on Airbnb, many have not. If your client is comfortable taking in overnight guests, it’s an option to produce additional income.
• Consider house sharing. If your client has a house with extra bedrooms, are they willing to have roommates? Your client will need to check local regulations, but bringing in one or two roommates can create an additional income stream.

If Your Client Has Assets They Assume They Can’t Touch

• Borrow against retirement plans. Although the pandemic caused some bending of the rules, generally speaking, borrowing against IRA accounts is not possible. However, some companies do offer the ability to take out loans against 401(k) and 403(b) plans. This may also be true of some defined benefit pension plans. Is this an option your client can consider? 
• Borrow against restricted stock. If your client has stock they can’t sell because it isn’t quite theirs yet, they should be able to borrow, using their restricted stock as collateral. They should discuss this with their bank or brokerage firm.

Your client might think they are out of alternatives, but as their trusted advisor, you might be able to suggest a few they haven’t considered. It’s another way you can share your financial planning expertise.