On Friday, April 5th, a 4.8 magnitude earthquake struck New York and its surrounding areas. While relatively minor compared to the seismic activity experienced by many of my West Coast friends, it was an unexpected and jarring event for New Yorkers. After all, earthquakes are not commonplace in this part of the country.
My initial reaction, as my house rattled for about 30 seconds, was one of utter confusion. My wife mistook the tremors for me doing jumping jacks in my office (apparently, it creates enough force to shake the entire house!). Initially, I suspected a malfunctioning truck on the street or perhaps a boiler explosion. Rushing outside alongside several neighbors with similar theories, it dawned on us collectively that it must have been an earthquake.
After the initial bewilderment wore off, a sense of helplessness settled in. There was nothing in my power to halt or alleviate the earthquake’s impact; all we could do was wait for it to pass. Effective earthquake preparation, typically undertaken in more susceptible cities, occurs well before the earthquake strikes. This includes collaborating with engineers to retrofit older structures and design new buildings, bridges, and highways to withstand seismic activity as effectively as possible.
Unpleasant surprises that induce feelings of helplessness can also strike our personal finances. In fact, the likelihood of adverse financial events impacting our nest eggs is far higher than experiencing an earthquake. These unforeseen circumstances may include investment failures, the loss of a family member, the disability of a breadwinner, and more. Just as cities fortify themselves against earthquakes through preemptive measures and infrastructure, every family should strengthen their finances to withstand financial adversity. Below are some strategies to consider:
Diversification: Every investment has its day in the sun. Currently, hot investments include private credit, tech stocks, and the S&P 500 index. However, like all investments, these market sectors will inevitably experience downturns or prolonged stagnation. The same holds true for any investment, asset class, or strategy. Investors who concentrate all their funds in a few market sectors risk complete depletion during downturns. The key safeguard for all investors is diversification. Diversification entails exposure to various investments so that when one performs poorly, others perform better, ensuring a balance of winners and losers over time. Planning for the eventuality of individual investment failures is crucial for long-term investors.
Life Insurance: The death of a family member, particularly if they are a breadwinner or manage household affairs, can be devastating. Utilizing life insurance to safeguard against the loss of income or to fund household assistance is essential for every young family. A 20- or 30-year term insurance policy with level premiums can offer relatively inexpensive coverage tailored to support families through such challenging circumstances. Acquiring coverage while young and healthy is advisable, as advancing age and health issues can significantly raise insurance costs. Individuals deemed uninsurable due to health concerns may access more affordable life insurance through employer-provided coverage.
Disability Insurance: Disability insurance provides monthly payments to people whose disabilities hinder or halt their ability to work. The inability to work may be due to a devastating accident that makes you unable to do any job, or from a disability preventing the execution of one’s trained profession. For example, a surgeon with irreparable wrist damage from sports-related injury may be prevented from performing surgery again. He may be able to work in another job, but it may be at a lower salary. Proper disability insurance can partially offset this income disparity.
Long-Term Care Insurance: Long-term care insurance policies reimburse policyholders a daily amount for services to assist them with activities of daily living such as bathing, dressing, or eating. Sure, you may be one of the lucky ones who will die at 120 in their sleep after living a healthy life until the end, but that is not the reality for most people. Therefore, planning for potential long-term care needs is imperative, as failure to do so can devastate a lifetime of savings or burden family members with care coordination. Obtaining coverage in one’s 50s or 60s is crucial.
Estate Planning Documents: None of us know when we will die. Therefore, establishing proper estate planning documentation early on is imperative. These plans can be revised and should be revisited with every significant life event. Essential estate planning documents include:
Will: This is a document that outlines how and to whom your property will be distributed after your death.
Halachic Will: A “Shtar Chatzi Zachor” is a halachic will, drafted in accordance with Jewish law, which creates a means of circumventing the Biblical inheritance requirements without violating them. The Shtar Chatzi Zachor serves as a supplement to a secular will and helps ensure all of one’s assets are divided according to their wishes without violating the halachic requirements. While boilerplate versions are available online, consulting with an attorney well-versed in this area is advisable.
Durable Power of Attorney: A document that allows you to name someone to make financial decisions for you if you become disabled.
Healthcare Proxy: A document which appoints someone to make healthcare decisions if you become unable to do so for yourself.
Living Will: A document which states preferences regarding life-extending medical measures in the case of terminal illness, permanent incapacitation, or unconsciousness. Your Rabbi should be consulted on this type of document to determine any halachic parameters.
Beneficiaries: Regularly review beneficiaries on investment accounts, insurance policies, retirement accounts, and annuities to ensure alignment with your wishes. These designations supersede will instructions, emphasizing the importance of accuracy.
Trust: Some individuals may require a trust as part of their planning. A trust may help protect and manage your property while you are alive and after your death, which can prevent the need for court proceedings after your death. Consult your estate planning attorney whether a trust may be right for you.
The great New York earthquake of 2024 reminds us of life’s uncontrollable nature. However, we can take precautionary measures to mitigate the consequences of these unpredictable events. And the best time to implement these risk mitigation strategies is TODAY!
