Money

Protecting Your Nest Egg

Written By Vince Paolucci and Mitchell R. Zachary

You’ve just lost half your net worth – you don’t know where the next time bomb is ticking in your portfolio and as you get older your time horizon for gaining it back is shrinking.  You never thought it would be quite this stressful!  Your bipartisan sleeping pattern must be similar to John McCain’s; when asked how he could sleep after his election defeat, he replied that he just slept like a baby – sleep two hours, wake up and cry, sleep two hours, wake up and cry.

You may be in that same situation – but all hope is not lost.  Stay positive and let’s examine ways that will alleviate some of those sleepless nights.

Be Properly Insured

This might be a strange inquiry when discussing financial health, but are you physically and mentally healthy?  Your balance sheet may be diminishing, but it could shrink even faster if you’re not adequately protected against health catastrophe.  You must make sure you have sufficient life insurance to help your loved ones when you go, but more important, what would happen if you became disabled?  Review your health insurance and disability policies with your trusted financial advisor to ensure that there are no holes in your coverage – including ones that could eat away at your assets.

If you’re a business owner, make sure you have business-interruption insurance to cover you if you’re unable to work.  Have you considered long-term care insurance?  The price of various levels of nursing care is rising rapidly; a stroke, or some other illness could be devastating.  Rather than being afraid of these scenarios, you should have these risks evaluated and implement a plan to address them.  You must give yourself some peace of mind that you have protected yourself and your family in the event of a prolonged illness.

What about your investments?  Chances are that any investments you have made in equities are now as low as you’ve ever seen them.  How are you ever going to get that money back?  Although selling off now would trigger the recognition of losses (which for tax purposes could be carried forward and used against future gains), you might want to consider reallocating those investments differently.  If you have absolutely no stomach for future losses or a flatlined stock market, you might consider investing your money in tax-exempt bonds; you can then stop worrying continuously about the stock market.

As you get older, more of your savings should be converted into conservative investment vehicles.  At the same time, you must accept living with the idea of lost opportunities – you will not capitalize on the rebound of the stock market, whenever that occurs.  If you are able to be aggressive and you want to recoup lost investments, you should consider investing in stocks that are paying good dividend yields.  There are many “safe” stocks that have been beaten down in price, but are still paying healthy dividends.  If you know that you’re getting a good dividend yield on a stock, you don’t have to be as concerned about its price fluctuation because you won’t be selling it in the short term.  Also, dividends currently receive favorable tax treatment and are taxed at less than half the rate of interest.  You should not attempt to pick these stocks out yourself; have your investment advisor provide you with a  list of possibilities, then make a choice based on the research and advice.  It is great to be a part of the process, but make sure an investment professional is overseeing the process to ensure greater success.

Safeguard Your Savings

In addition, it’s wise to make sure your savings are protected; since the FDIC will currently insure deposits up to $250,000 per depositor per bank insured under the government program, you may want to consider setting up accounts at different banks so your total balance in each institution does not exceed the insured limit.

There are many things in life that you can’t control.  There are ways that you can improve your quality of life.  Whether it’s exercising, leading a healthy lifestyle, or improving your home, you can control how these things are done.  When it comes to your investments and financial health, this is equally true.  If you can take control of your investments, insurance, and overall financial plan, you can survive a recession, keep yourself financially healthy, and sleep better at night.

Vincent Paolucci, CPA, MST is Tax Partner-in-Charge and Mitchell R. Zachary, CPA/PFS, CFP is a Tax Partner at Grassi & Co., CPAs (www.grassicpas.com), a full-service accounting and business consulting firm based in Lake Success, NY.  They can be reached at (516) 256-3500 or via email at [email protected] or [email protected].

THINGS TO CONSIDER

  • If you’re still working and eligible for Social Security, do the math and figure out whether you should collect it now or not.
  • Consider purchasing a life insurance policy to pay for any estate taxes.
  • If you’re retired and your cash flow is not sufficient to cover your home expenses, consider a reverse mortgage.

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