Make sure you ready yourself for disaster, at least in terms of your money
Hurricane Ian is expected to become a Category 4 storm before landfall over Florida's Gulf Coast. Ian has a maximum sustained wind speed of 125 mph and a Hurricane Warning was extended in southwestern Florida with life-threatening storm surge predicted, along with potentially catastrophic winds and flooding. And as of late Tuesday, over 2 million Floridians were under mandatory evacuation orders. Reflecting on recent natural disasters, you might remember Hurricane Katrina – the most destructive Atlantic hurricane that caused over 1,800 fatalities and $125 billion in damage in late August 2005. It was at the time the costliest hurricane on record and is now tied with 2017's Hurricane Harvey.
Price Tags are Not Simple Though
While recovery professionals can measure the dollar cost of putting structures back together and insurance companies can talk about claims paid, it’s much harder for us to measure the ongoing financial aftermath on survivors. Price tags of displacement after hurricanes are both emotional and economic: Some survivors endure loss of jobs, others will incur medical costs from injuries. Still others pay to bury a loved one. Disasters certainly continue, with wreckage and devastation spreading further and deeper than headline pictures. Just as the loss of life touches all of us, victims’ families now contend with all the futures – including the financial ones – lost.
Life’s path is rarely flat for long.
What if disaster, big or small, struck you? You can ready yourself, at least in terms of your money.
Disaster Planning with Your Money
Focusing on just one, single element often comes at the expense of another. Similarly, lacking flexibility that allows for both big shocks and small bumps in the road, a single blow can undermine everything you try to achieve with your financial plan. For example, let’s look at a financial objective you might have: generating retirement income. Most options that the Internal Revenue Service allow for building your retirement plan accounts – and so your golden years’ income stream – may be sufficient or at least a help. And frequently the IRS grants tax and tax-filing breaks to victims of such regional disasters as hurricanes, earthquakes, floods, prolonged draughts and major storms. Government agencies’ responses are clearly not the most flexible plans after widespread distress, though, helping only large communities or big groups of people. Individual victims and their families are sometimes forced to tap savings – often retirement nest eggs. While accessing your retirement plan dollars may help deal with the immediate, personal or small-scale emergency, the move doesn't address (and in fact hurts) your long-term challenge of generating a revenue stream in retirement. You’re best off reaching for money set aside just for a crisis.
Keep an Emergency Fund
Preserving your flexibility can mean taking the time now to ready a specific financial tool, such as a Roth individual retirement account. A Roth IRA allows you to grow retirement income tax-free and yet still access the contribution amounts without tax or penalty in an emergency. Catastrophe cash isn’t much good, of course, if you can’t withdraw it fast. Try keeping limited funds (six months of your normal expenses, say) in in an easily accessible savings or checking account. The Federal Deposit Insurance Corp. insures your money up to $250,000 (although your interest will likely be far less than 1%).
You can also explore a money market account from a bank, discount brokerage house or other financial institution, which also pay little interest, usually around 1% or less. Great financial planning requires you to employ two contrasting skills: Focus intently on your end objective– whether a comfortable retirement or a certain net worth – yet remain flexible for the inevitable bumps in the road. Start now before disaster strikes
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