Keeping Afloat as the Storms Blow Harder

Senior Times

 

Jill Kerby offers some options to protect your assets as this recession deepens

 We may be living in a predominantly youth culture, but it seems that 18 to 24 year olds have more in common with the ‘senior’ population than you may imagine.

According to a recent survey conducted by An Bord Bia into the spending habits of various age groups, the 18 to 24 year olds and the 55-65 year olds are the two generations that are ‘less panicked’ than any other about about the deepening recession.

This isn’t too surprising: the younger respondents are still living – mostly free - at home and their overheads tend to be mostly discretionary once their education costs are accounted for. The older generation is also mostly still living at home – a paid off home typically – and their overheads are lower than when they had 18-24 year olds sharing the premises.

So good, so far.

Where attitudes towards their respective financial positions diverge, is how when you are 18 to 24 you tend to live in the present, not the future. Your finances are usually irregular and ad hoc; you usually have little choice but to live within your means.  When you are 20, and (in your own mind) immortal, the accumulation and preservation of money doesn’t have the same sense of urgency as it does when you are in your 50’s, 60s or 70s and it is intimately tied up in your own sense of health, wealth and security.

This heightened sense of financial security is a major issue for many over 50s and seniors right now, as they see not just the value of their private pension funds devalued by the economic and credit storm (especially if those funds were widely exposed to equities, as most were), but also their savings, which are not only being assaulted by rapidly falling interest rates but higher DIRT tax.  Finally, their personal finances are also being impacted by higher taxes and the delivery of fewer services as the government frantically tries to repair its own balance sheet.

Weather the storm

It was just a year ago that I wrote how the over-50s were probably the single constituency that would weather the recessionary storm better than any other group. But that was before not just property prices crashed, but the global investment banking system and stock markets collapsed, deflation risk took over from inflation and our nation’s finances went into melt-down.

Anyone who has been relying on share dividends – especially from blue chip shares like the Irish banks - to boost their pension will have suffered losses in the region of 90%. Private pension funds or ARFs values are likely to have fallen by at least 30%-40%. Anyone with rental income may have had to cut it to keep their tenant;  going forward capital values may fall if property taxes are introduced. (This article was written before the April mini-budget.)

The older person who has been mainly reliant on the state pension hasn’t been  liable for the income levies and should still have their free medical but it is an exaggeration to say that the slight fall in the price of food, clothing, furniture and energy makes up for the higher cost of transportation, other utilities and health services, or more importantly, the cutbacks in the delivery of these services. It doesn’t but they are unlikely to see much rise in their social welfare pension in compensation.

 

Unfortunately, things are not going to get any better over the next few years either unless there is a miraculous recovery in the US, UK and global economies.

Far more time will be needed than anyone expects for the trillion dollar stimulus, recapitalisation and interest lowering campaign of President Obama’s new administration to stop the haemorrhaging of jobs, for the housing market to recover, and for the massive debts incurred by bank, industry and people to be inflated away (it clearly cannot be paid off.) 

That is, if these measures work at all.

It won’t just be the debts of a nation (and its profligate citizen-spenders) that will be inflated away if the current plan by governments to print money continues.  Any hard earned savings – the cash in your deposit account as well as in your pension funds – will also be inflated away as prices rise.

 

YOUR OPTIONS..

So what should you do? Perhaps you should consider the following:

 

-         Ensuring that you are claiming all existing tax reliefs and allowances, including any not claimed over the previous past four years and all your social welfare benefits. Your Citizen’s Information Centre can help.

-         Protect the security of your money as much as its value. They don’t pay the highest fixed or regular saving returns but two of the financial institutions with the safest risk profiles are PostBank (half owned by An Post and Fortis Luxembourg) and the only triple A-rated bank in Ireland, RaboDirect.

-         If you haven’t retired yet, review your pension funds and other retirement assets. If you are within 10 years of retirement you shouldn’t be overly exposed to stocks and shares; consider ‘safer’ – a relative term these days, cash and bond funds for your retirement savings. Younger investors – or those with genuine ‘spare’ cash should consider assets like oil and other energy shares, water resources, agriculture and precious and base metal commodities, arable land, food shares and forestry – effectively, resources with a recognised, intrinsic, lasting value.  Some advisors are recommending that a portion of large cash holdings be converted into gold and silver.  (See www.gold.ie for more information about buying and holding precious metals.)

-         Raise immediate cash by renting a spare room in your home via the tax-free Rent-a-Room scheme.  You can earn up to €10,000 a year tax-free from this scheme.

-         Consider the savings you could achieve by renting your home out and moving to a cheaper country to a cheaper country like Spain or Portugal or other Mediterranean EU country for all or if you have adult children with families of their own swopping your larger property for their smaller one. This will be a wise choice if property taxes are introduced based on rateable values.

-         Investigate whether you might qualify for home equity release from Seniors Money or Bank of Ireland’s Lifeloan.  Lower property values mean that there are more restrictions on the amounts that can be borrowed, but for many seniors, this may be the only way to secure a lump sum to boost their flagging incomes.

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Jill Kerby will be giving personal finance presentations at the upcoming Over 50s Shows.

 

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