By Cynthia Ramnarace
NEW YORK Nov 30 One month ago, John Schreiber's
South Freeport, New York, home became one of more than 300,000
in the state flooded by Superstorm Sandy.
Since then, the 65-year-old retired school teacher has been
hemorrhaging cash while he waits for an insurance payment he
expects will be in the $50,000-$60,000 range. But his home
repairs won't wait.
Many Sandy homeowners are finding themselves cash strapped
in this financial no-man's land: The bills are here now, but the
money from insurance settlements and the Federal Emergency
Management Agency (FEMA) hasn't shown up yet - and they don't
know when it will arrive or how much it will cover.
So far, FEMA has approved $703 million in assistance in New
York and $261 million in New Jersey. The Insurance Information
Institute estimates claims could top $18 billion, excluding
National Flood Insurance Program money for which there are no
Insurance companies have received 360,000 claims so far and
say they are doing all they can to move money fast. But New York
governor Andrew Cuomo set emergency rules this week to push
insurers to hurry up and help homeowners such as Schreiber, who
know the pain of waiting. He's been approved for a $15,000
advance payment from his insurer, but still hasn't received the
In the meantime, he has blown through $10,000 in savings and
has been charging up his credit cards, bleeding his retirement
accounts and borrowing from his girlfriend in the hope the
insurance money will come in fast enough to replenish those
There is an order of withdrawals that makes sense for the
Sandy-afflicted who need to raise cash quickly. Here's how to
pull together the money you need without inflicting more damage
on yourself along the way.
THAT EMERGENCY FUND
Ideally, you already had three to six months of living
expenses on hand.
"But don't deplete that fund so much that you can't pay your
bills over the next month," says Daniel Beckerman, a Long
Branch, New Jersey, financial planner.
If you own stocks outside of retirement accounts, head there
next, Beckerman advises. It's a good time to sell stocks now
anyway, he says, because there could be higher capital gains tax
rates next year.
If you have a sizable stock portfolio, you could take out a
margin loan. Generally you can borrow against half of your
"In essence it's a bridge loan," says Peter Lang, managing
director of Hightower Advisors in Harrison, New York.
These loans are pre-approved and automatic, so you can write
a check to your contractor immediately.
But this is risky. If the market takes a dive, your
brokerage might issue a margin call requiring you to pay back
the money lest they sell off your securities to cover the
If you already have a home equity line of credit (HELOC),
now is the best time to use it. You will have quick access to
cash without having to go through a loan approval process. If
you don't already have a HELOC, but the repairs you need are on
a second home, you might be able to apply for a HELOC on your
primary residence and use those funds to pay for improvements to
the vacation home.
Like many Sandy homeowners, though, Schreiber didn't have
these as an option because getting a HELOC on his damaged home
would be an uphill struggle, considering the need for an
The next best option is to ask local banks if they have any
short-term, low-interest loan programs for disaster victims.
Community organizations might also offer quick loans.
Putting repairs on your credit card can be dangerous because
interest rates are comparatively high, but sometimes it's
necessary. You can transfer debt to a low-interest card, even
getting as low as zero percent financing, but make sure you read
the fine print - those low rates typically last a year or less.
And they often come with transfer charges.
"Only use the credit card if the total amount you need is
less than the total amount you'll get from your insurance
settlement," says Ben Woolsey, director of marketing and
consumer research for CreditCards.com.
HIT YOUR RETIREMENT ACCOUNT
There are good reasons why most financial advisors say your
individual retirement accounts (IRAs), 401(k)s and 403(b)s
should be your money pot of last resort. But that's where
homeowners such as Schreiber are right now.
"I feel like my savings, 403b, checking and credit card
accounts have faucets on them that are stuck open," says
If you withdraw from an individual retirement account (IRA)
you have 60 days to pay that money back without having to pay
interest or penalties. If the insurance company could have a
check to you by then you're safe, but what if they don't?
If you withdrew $20,000 from your IRA, you'd owe 20 percent
in taxes and an additional 10 percent early withdrawal penalty,
if you are younger than 59 and a half. That $20,000 would
suddenly only be $14,000. And since that money doesn't come due
until you file your taxes, you could find yourself with tax-bill
sticker shock come April 15. Furthermore, you'd be unable to
re-deposit the money to your IRA, so you would lose the
long-term retirement savings advantage.
You can also borrow against a workplace retirement plan such
as a 401(k) or 403(b) plan for up to five years without facing
taxes or penalties, but there are strings attached. You are not
allowed to add any extra funds while the loan is outstanding.
And if you were to be leave your job before paying up, the
balance of the loan would typically have to be paid within 60
days. If not, the amount you withdrew would be subject to income
tax and early withdrawal penalties.
While early withdrawals and loans from a retirement account
generally require proof of "hardship," such as needing repairs
to a home, the Internal Revenue Service recently eased rules to
allow family members to withdraw funds to help a parent, child
or grandchild who needs financial assistance due to
So if your retirement account doesn't have the money you
need, you could ask for a loan from a family member. That may
not be easy, but it could be less painful than calling the
insurance company one more time to inquire about your check.