How the Financial Rescue Plan May Affect You

The financial rescue plans and bail-out measure being taken by the government will have far-reaching effects on everyone. The underlying financial situation that prompted these rescues will have even more of an impact.

It’s hard to predict how all this will play out, both in the short and long-term.  Much will depend on the actions of the new Presidential Administration and Congress.  You may feel effects in several areas.

Your Job

The financial sector has already taken an employment hit.  Jobs in other fields, like automobile manufacturing and sales, real estate and construction, are also cutting jobs.

If unemployment figures reach the 8-10% levels some are predicting, the impact will expand to include just about every sector of business.  Your job may be at risk, now or in the near future.

Keep an eye on your field and workplace.  Keep your resume up-to-date and your network of colleagues active.  Try to make yourself indispensable to your current employer.  Above all, make sure you have an adequate emergency fund…just in case.

Your Home

Take a look at your mortgage.  Is it the best one you could have?  Foreclosure rates have skyrocketed, and risky adjustable mortgages play a large role in the debacle.  If you owe more than your home is worth or have an adjustable rate mortgage due to reset, you’re at risk.  Try to convert to a fixed-rate mortgage, if your credit rating will allow.

Somewhere down the road, there may be a partial bailout for distressed homeowners, but its format is unknown.  If you’re on the verge of foreclosure, try to renegotiate with the mortgage holder.  Once you’re out of a foreclosed home, any bailout will probably not apply.

Your Savings 

If you have large cash savings in a bank or savings & loans, there’s good news.  Individual accounts in a single bank are now protected up to $250,000.  Joint accounts are insured up to $500,000.  The protection expires in December, 2009, so keep an eye out for any changes.

There’s a chance that your bank, like some others, may fail, and be absorbed by another bank.  Even in that case, your insured assets are protected.  Enjoy being in the position where your savings aren’t subject to the whims of the market.

Your Investments

Stock prices plummeted in October, 2008, reaching lows not seen for years.  Markets may be volatile for some time.  Many simply bailed out of the market.  They may have made a serious mistake, locking in their losses without any hope of a recovery.  Again, the new administration and Congress will make decisions that will affect your investments.  Pay close attention.

History teaches that the markets will recover, over time.  How much time?  That’s an unknown.  With some exceptions, you’ll probably recover your losses over time, unless you own stock in firms that go bankrupt.  If you have large equity investments, consult with a trusted advisor, get a second opinion, and use your own best judgment.

Your Taxes

The Rescue Plan and other bailout strategies have one thing in common; they are taking money the government doesn’t have and pumping it into the economy.  Eventually, that money has to come from somewhere.  Odds are that it’s going to come from the taxpayers.  Your grandchildren may still be saddled with the cost of these measures.

In the short-term, though, there is good news for some taxpayers.  The Rescue Plan offers some benefits for some middle-income taxpayers.  The threshold at which the Alternative Minimum tax goes up to $69,950 for couples filing jointly.  The deductions for state and local taxes and for qualified college tuition continue through 2009.

Your Retirement

The Rescue Plan is going to take time to work, and the current economic situation has hit retirement investments hard.

If you’re a decade or more from retirement, time will probably heal your losses due to this crisis.  Continue to contribute to well-balanced 401(k) and IRA accounts.  If history is any guide, you’ll probably do just fine.

If you are planning to retire soon, you may have lost considerable value in your equity-based 401(k) and IRA accounts.  It’s time to reassess your situation.  The current economic situation may require postponing retirement or changing expectations.

If you’re already retired, you may be among the hardest hit, especially if you’re invested in equity holdings.  The recovery may not happen soon enough.  Check your investments now, consult with a trusted advisor, and possibly consider returning to the workplace temporarily.

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