Nashville Tornadoes and the Saftey of a Roth IRASubmitted by Reed Financial Group on March 6th, 2020
How ready are you when the inevitable disaster strikes you and your family?
At least two dozen people are dead after fast-moving and devastatingly powerful tornadoes screamed through Nashville and the surrounding areas in the early morning of March 3rd.
Moving upwards of 165 mph, three separate tornadoes ripped across four counties, destroying homes, schools, businesses and churches and leaving tens of thousands without power. With hundreds injured and recovery efforts continuing through the week, the death toll is expected to rise.
Not Everything Can be Measured in Dollars
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 the tornadoes will be both emotional and economic: Some survivors will endur loss of jobs while others will incur astronomical medical costs from injuries. Still others will pay to bury a loved one.
Tornadoes will certainly continue, with wreckage and devastation spreading further and deeper, especially since the United States leads the world with an average of over 1,200 tornadoes each year (Canada is a distant second with about 100 per year). Worse, we are just entering Tornado Season, which runs roughly from March through June, but seems to start sooner and end later each year. And while the loss of life touches all of us, victims’ families now contend with all the futures – including the financial ones – lost.
Plan for Disasters
Life’s path is rarely flat for long. What if disaster, big or small, struck you and your family? You can ready yourself, at least in terms of your money.
Financial planning is complex and focusing on a single element often comes at the expense of another. Similarly, if your financial plan lacks flexibility that allows for both big shocks and small bumps in the road, a single blow can undermine everything you try to achieve.
For example, let’s look at a financial objective you might have: generating retirement income. Most options that the Internal Revenue Service and Department of Labor allow are great for building your retirement plan accounts and as such, your golden years’ income stream may be sufficient or at least a help. And frequently the IRS also grants tax and tax-filing breaks to victims of such regional disasters as tornadoes, earthquakes, floods, prolonged draughts and major storms.
But 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 your needed revenue stream in retirement. You’re best off reaching for money set aside just for a crisis.
Consider a Roth IRA for Your Safety Net
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 closer to 0% than you might think.
You can also explore a money market account from a bank or other financial institution, but again, those pay little interest too, almost 0%.
Remember this: in early March 2020, the yield on the 10-year Treasury note dipped to unprecedented lows when it dropped under 1.00% for the first time in history.
Financial Planning & Your Advisor
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. How can you balance the two? What financial tools can help you most?
Talk to your financial advisor to make sure you and your family are prepared.