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Preparing For Life's "Surprises"

By Walter L. Guertin, CFP®, CPA/PFS, CSA
Senior Vice President, Financial Planning

The hurricanes in Louisiana and Texas generated much publicity and advice about disaster planning. If something like this happened to you, would you be prepared? Life is so fragile that a single bad experience can change everything. What have you done to prepare for these or other potential life "surprises"?

Casualty Loss

When is the last time you checked on your homeowners' insurance coverage? Is it sufficient to provide for the full replacement of your home? Do you have an umbrella liability policy which, at a reasonable cost, can provide you with liability coverage over and above your current homeowners and auto insurance limits?

What about earthquake insurance? Your homeowners insurance does not cover damage from earthquakes. If you live in California, there is no doubt you should have earthquake insurance. If you are in Massachusetts - a mid-risk area - the answer is not so simple. In a rating system ranging in degrees from zone 0 to zone 4 (most vulnerable to an earthquake), Massachusetts is in zone 2A. Among other factors, zones are rated according to the location of underlying faults, although many earthquakes have occurred in places where no one knew there was a fault. Earthquake insurance is relatively inexpensive and is certainly something you should ask your insurance agent about.

If you had to leave your home immediately and only had a few minutes to decide, would you know what to take? Why not make a list now and put it in an easy to access (and to remember!) place. A small detail, but certainly more than a few New Orleans residents probably wished that they had created such a list.

Disability

Statistically, there is a one-in-five chance of being disabled for a period of time before age 65. What would happen to your overall personal finances if the primary wage earner in your family was out of work for an extended period due to disability? Would there be enough money to support the family? Can you afford to take a chance that you won't be that one-out-of-five? If not, you should investigate the cost of disability insurance and consider purchasing as much as you can reasonably afford.

Job Loss

A rule of thumb is that a person should have at least three-to-six months available in liquid funds to cover expenses should the primary wage earner be out of work. This may not always be possible for some individuals or families. As an alternative, if you are a homeowner, you could create an "emergency fund" by establishing (or increasing) the equity line of credit on your home. With house values currently at an all-time high, now may be the best time to do this. One caveat: Remember that this line should be earmarked for emergency purposes only. It should not be considered free money to be used now!

Retirement

Technically, retirement should not be considered a "surprise" for anyone. The surprise comes when a person realizes that he or she has not saved enough for retirement and, therefore, can't retire! While many people are not saving for retirement as much as they should, some are at least aware of this inevitable transition and are taking some steps to prepare for it. Many even have a general idea about when they will retire. But what if you need to retire earlier than planned due to poor health?

According to the National Council on Aging, 40 percent of retirees blamed declining health as the major factor in their decision to retire sooner than planned. This means people are retiring who likely are not financially ready to retire. While health problems can appear suddenly, often they do not, and you may recognize the possibility that you won't be able to retire as late as you desire. Being aware of this and planning for it can help you through this "surprise" transition of forced retirement. This may involve making retirement savings your highest financial priority.

Poor Health/Long Term Care

Many families have aging parents who are still managing to live independently, but because of declining health will someday almost certainly need additional care either in their own homes or at an outside facility. In fact, it has been estimated that individuals today have about a 50% chance of needing some type of long-term care during their lifetimes. Notwithstanding these odds, many have opted to wait until they are "surprised" by it. Have you thought about the financial consequences of someday needing long-term care? Should you at least be considering long-term care insurance and, if not, have you determined how you would pay for this care if you needed it?

Death

Dealing with all of the related financial issues are challenging enough during good times, but it's infinitely more difficult when you're trying to manage them following the death of a loved one. Why not try to anticipate the transition and plan before it actually occurs? If there is a primary wage earner in your family, do you know the financial consequences of his or her premature death? Will your current assets plus life insurance be sufficient to permit your family to maintain its current standard of living? What if the decedent also happens to be the "money person" in the household? Would family members know where important documents are located and whom they should contact if something happened?

At least once every year, we need think about what financial life transitions may lay ahead and what we can do between now and then to prepare for them. As the saying goes, "Plan for the worst, but hope for the best". Even if the "best" continues to happen, you at least will be comforted by the knowledge that you are prepared for any life "surprises" that come your way.


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