Always Be Prepared
(Previously Published in The Ponte Vedra Recorder – Ponte Vedra Beach, Florida)
I read an article the other day that’s focus was on how unprepared our country is for the next recession. Many people reading that same article may have a reaction of surprise at the implication that a recession was on the horizon, given that all the economic indicators are positive now and trending higher, suggesting that the threat of a recession is quite low.
That said; given that the last recession began close to ten years ago, it is not inconceivable that the next one is a couple of years off versus a decade away. While our government at all levels may not be prepared, we, as individuals, should be taking actions regularly to position us for whatever downturn comes to pass. We may not be able to convince the government to prepare, but we can prepare ourselves. Let me review some of the steps you may want to consider taking now while economic times are favorable:
- Establish an emergency fund if you don’t already have one. The fund should equal at least three months’ expenses – six months is preferable – more if your income is commission-dependent. Invest the fund in fairly liquid assets so you can tap the fund if needed without incurring penalties or losses.
- Pay down/off debt. Start with short-term debt such as credit cards and installment loans, move to lines of credit and automobile loans and, ultimately, mortgage debt if it makes sense economically. Reducing monthly payments provides you greater flexibility if your income takes a hit.
- Don’t refinance debt if you are close to retiring it. Many lenders will offer attractive terms to refinance debt with reduced payments in return for extending the term of the loan. If you have years to go before the debt is satisfied, then refinancing may make sense. However, if you can retire the debt in the next two years, don’t refinance – just pay it off.
- After you’ve fully funded your emergency fund and paid off as much debt as makes sense, save more money. Under present tax rules, you can increase your contributions to a 401(k) plan to $18,500 per year ($26,500 if you are 50 or older) beginning in 2018. You may be able to contribute to an IRA as well where the limits are $5,500 for those under 50 and $6,500 per year for those 50 and older. And, you can always fund an after-tax savings or investment account where there are no limits.
- Lastly, consider placing savings or IRA funds in a mutual fund which is tactically managed, rules algorithm which will trigger into a cash position to avoid large draw-downs. Our firm can offer you these options for large cap, medium cap and even income producing funds.
Predicting recessions is part science, part insight and part luck. There are some who constantly predict downturns because they want to be right when one happens. Remember the old adage that even a broken clock is right twice a day. The reality is that no one knows, with any certainty, when the next recession will occur. But, with the proper planning, you needn’t worry about it – you have followed the old Boy Scout motto of always being prepared.
Frederic “Ric” Schilling is a Florida native, born in Jacksonville, Fl. Ric is President of Senior Guardians of America, a local North Florida firm specializing in tax reduction, long term illness planning, asset protection, probate avoidance and life income planning. Ric is a National Speaker and Advocate on Senior Issues and has been featured by the Florida Times Union and WJXT, TV-4 in Jacksonville as an authority on Estate Planning and Retirement Issues. Senior Guardians has an A+ rating with the Better Business Bureau and is a member in excellent standing with the National Ethics Association. Contact Frederic : 904-371-3302 or 888-891-3381
This article is not intended to give tax or legal advice. Securities offered through Center Street Securities, Inc.(CSS), a registered Broker-Dealer and Member of FINRA & SIPC. Senior Guardians is independent of CSS.