Your Money
How Queens Residents
Can Thrive
Even in Tough Times (Like These) By Michael Terry CFP The last couple of years were tough times. Everyone knows how the stock market tanked in late 2008 and early 2009. Likewise, we Queens residents can talk firsthand about the booms and busts of the real estate market as we watched our $750,000 houses drop down to $400,000 (meanwhile the tax assessment continued to go up, but that’s another story). And then there’s the job market. I’m sure that most of us know somebody who has lost a job and who’s still out there hunting. Yet there is a silver lining to all of this. For readers who followed the advice in this column (10 Do’s and Don’ts for Investing in an Uncertain Economy, It’s Queens Fall 2008), you’re probably feeling pretty good about yourselves. You didn’t panic. You stayed the course and were rewarded because from March of 2009 to December both the domestic and foreign stock markets soared as much as 38 percent (Dow Jones US Small Cap Index). Every major 64 Spring 2010 www.itsqueens.com
equity index showed double digit growth and the Barclay’s Aggregate Bond Index went up 6.94 percent. So, pat yourself on the back, enjoy your beverage of choice, and relax and enjoy. Or not. Actually, vigilance is key in both good times and bad, and while all the signs point to a gradual ending to this recession, we’re not out of the hot water yet and the recovery for Queens, particularly in real estate and jobs, is probably still months away. So what steps would be prudent to take today? First re-examine your emergency fund. If you are still employed, congratulations, but the risk of unemployment is still high in our area and businesses are still failing and shutting their doors, so consider increasing the size of your emergency fund. In good times, an emergency fund should cover your expenses for 3 to 6 months. In times like these, 8 months is safer. Shelter Hard-Earned Money Now Are you totally funding all your retirement accounts? Be sure to
maximize your 401(k), particularly if you’re not getting the full employer match. If you are self-employed, there are a variety of plans like the SEP IRA and the Personal 401(k) to help you shelter hard-earned money from the “tax man.” Depending on your tax situation, consider investing in a Roth IRA if you qualify. Roth IRA’s will not give you a current tax deduction but they grow tax-free. None of those annoying required minimum distributions at age 70.5 and beyond. And, with proper investing and estate planning, Roth IRA’s can help your family for several generations. For example, a $500,000 Roth IRA left to a 10-year-old grandchild could generate a generous yearly cash distribution for 70 or more years. But watch the rules for inherited IRAs because they are tricky and an error here can cost you dearly. Speaking of Roth IRA’s, 2010 is a great time to consider converting your IRA into a Roth IRA. This is the first year, and possibly the only year, that Uncle Sam is letting anybody, regardless of income, convert IRA’s to Roth IRA’s. And he’s even letting you pay the tax bill over two years rather than one. What a deal. Of course, you still have to pay taxes on all the money that you convert, but now that money can grow taxfree for the rest of your lifetime and possibly the lifetimes of your children or grandchildren. Don’t have enough cash to fund your emergency fund or your retirement plans? Now would be a great time to create a budget. Are you sure that everything you buy is a necessity? Do you really need a new car every three years? How about those three cappuccinos you’re getting every day? Eating out too much? Cutting down discretionary spending and putting away the savings is always a good idea and can be relatively pain free, but if you don’t have any idea what you’re spending all your money on, you will have little incentive to save. For example, eating lunch out 3 days a week at $12 per day takes $1,872 out of your pocket. Invested at 6