In ordinary times, advisors working with federal employees have a pretty straightforward job – helping clients with a reliable income work toward their financial goals.
Government employees are fairly predictable; they don’t change jobs frequently, and they don’t receive bonuses. But when the government shuts down even partially, thankfully an uncommon occurrence, advisors can face unusual challenges.
The partial shutdown currently underway begin at midnight on December 21, so many “essential” and furloughed employees haven’t seen their paychecks affected. But if the shutdown continues or salaries aren’t paid retroactively, federal employees may find themselves in a pickle. They may be forced to plunder emergency funds, put off planned expenditures, and curtail contributions to college and retirement accounts. While that is all unpleasant, the plight of contractors is far worse. They will be unlikely to recover lost revenues and wages.
A 2015 study on the impact of the 16-day government shutdown in 2013 found that many federal employees were ill-prepared. Large numbers of employees, even the top third of earners impacted, had relatively low balances in checking and savings accounts. This underscored the need for advisors to help clients establish and contribute to emergency funds.
The current shutdown is particularly ill-times, coming as it did right before the holidays. Many clients may have found themselves at a lower ebb than usual due to increased holiday spending, thus increasing the level of stress from the shutdown. This demonstrates the importance of government employees maintaining an emergency fund to cover at least 3 months of expenses. For contractors, subject to much graver damage in the instance of a shutdown, should have 6 months of expenses covered in an emergency fund.
In 2013, many federal employees responded to the shutdown by delaying credit card and mortgage payments. During the current shutdown, clients should make every effort to control expenses or turn to emergency funds rather than tap into tax-deferred savings vehicles.
For more on responding to the shutdown, please visit:
How Advisors Are Navigating a Partial Government Shutdown | Wealth Management