Financial Planning in a Pandemic: Know Your ‘Cost of Funds’

Financial Planning in a Pandemic: Know Your ‘Cost of Funds’
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Few households have escaped financial fallout from the COVID-19 crisis. Servicemembers past and present, and their families, are no exception.


From furloughs to troubled investments, every household faces a different type and degree of financial difficulty. But as you consider how to make upcoming payments or re-plan your financial future, no matter your situation, you should acquaint yourself with the concept of “cost of funds” – a familiar phrase for those in the financial industry, but not for everyone.


Put simply, the amount you have to pay to access a stream of money is the cost of funds. This could be interest on a loan, penalties on an early withdrawal, or a less-defined cost, such as the loss of an investment’s expected gains if the investment is liquidated.


Not all of these costs are easy to track or estimate when it comes to pandemic relief, but this graphic put together by the Association of Military Banks of America helps cut through some of the fog. As you consider tapping reserve income, keep these tips in mind.

  • Learn About COVID-Specific Relief ... Programs such as stimulus checks and expanded unemployment benefits – or business-related relief, if you’re a small business owner – are good first options for many. Find out more about many of these offerings here.

  • But Know Your Options. Some COVID-related relief proposals, such as a waiver of some early withdrawal penalties for retirement accounts or lower-cost borrowing from those accounts, may be right in certain situations, but still come at a cost. As AMBA points out, you should rely on emergency funds and consider grants from service-specific relief agencies before dipping into these assets. You may also find low-interest credit options, such as a small loan from your bank or credit union, that provides relief without potential long-term damage to your retirement planning.

IRS Adds New Criteria for COVID-Related Loans, Withdrawals From Retirement Plans]

  • Get Expert Guidance. If you are considering asset liquidation or other measures, be sure to work with a financial adviser to fully understand the short- and long-term implications. Unsure if you’ve got the right adviser? Check out MOAA’s advice on selecting one.

  • Watch Out for Fraud. Scammers find easy targets in uncertain times, and reports of COVID-related fraud are rampant. Even those who are in relatively safe financial waters could fall victim to charity scams or false promises of high-yield investment opportunities related to the pandemic. Check out for more examples of fraud and ways to avoid it.

Stay Informed

It’s more important than ever to make sure you’re in the know and your military benefits are protected.

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About the Author

Kevin Lilley
Kevin Lilley

Lilley serves as MOAA's digital content manager. His duties include producing, editing, and managing content for a variety of platforms, with a concentration on The MOAA Newsletter and Follow him on Twitter: @KRLilley