In a survey of individuals ages 50 and older, the AARP determined in the three years before October 2010:
- 31.6% saw their home’s value fall substantially.
- 24.7 Used up all of their savings;
- 19.4% Missed credit card payments or accumulated more debt;
- 14.6% had trouble paying their mortgage or rent;
- 12.4% lost their health insurance;
- 3.6% filed for bankruptcy;
- 1.4% were forced to sell their house;
- 1.4% lost their home to foreclosure
Life comes with many “what ifs,” and thankfully you can financially plan for many of them. Let’s look at some of the major questions:
What if You Stop Working Earlier than Expected?
An emergency fund is not there to pay for a leaky roof repair or a blown tire on a car. An emergency fund is several months’ worth of living expenses should you experience a financial hardship like the loss of a job or serious illness that results in a loss of the ability to work. How much you save depends on your family circumstances—are you the breadwinner or does someone else share the expenses, and how easily you could become employed again. The most common range is six to 12 months of reserves.
However, what you can do now is maintain a network of contacts to help you search for a new job, should you need one. Networking is an often overlooked aspect when developing and maintaining a career. Some of the best opportunities are shared person-to-person through networking. If two people are equally qualified, a job often goes to who is known, liked and trusted. Maintaining a network of associates and professionals in your field can aid you in landing your next job.
What if Your Investments Tank?
If you follow our Ten Year Rule, you shouldn’t have to worry about a bear market, because you should have 10 years of liquidity in place. Henssler Financial suggests investors have the money you need in the next 10 years in fixed-income investments. Any money you do not need within the next 10 years should be invested in high quality, individual common stocks or mutual funds.
By keeping 10 years’ worth of money in fixed investments, you should not need to sell investments in a down market to cover expenses. The Ten Year Rule provides you the ability to wait out a bad market. For those who sold during 2009, had they waited, the market returned to 2008 levels by the end of 2010. If those investors were following the Ten Year Rule, they could have made the decision to wait out the bad market before selling to fill the liquidity needs for 2019.
What if You Lose Your Spouse?
Death is an emotionally devastating time, and it is best to avoid making major financial decisions during that time. You can begin planning now by developing plans that ensure a surviving spouse will have enough to maintain your lifestyle. When working with clients, we have the luxury of not being emotional about your money, and can look at the economic need if a spouse should die. We suggest life insurance to match the lost income. For example, if the wife is the breadwinner, and the husband is a stay-at-home dad, we would suggest a much larger policy on the wife as her lost income would have a larger impact on the family finances. However, we do not discount the need of life insurance on the husband. While he may be a stay-at-home dad, if he were to die, there is an economic cost to raising the children and other household chores.
For younger clients, we focus more closely on disability insurance as a younger person has a greater chance of becoming disabled and unable to work than die. Unfortunately, disability insurance is one of the types of insurance that often gets overlooked. A disability policy can make sure you don’t run into debt while you are unable to work, and it can makes sure all your living expenses are covered during that time. Some families may opt to increase their emergency savings and choose a high payout disability policy that doesn’t pay out until a year after the disability.
What if You Can’t Sell Your Home?
We talk to many people who plan on selling their home when they retire to supplement their retirement savings. Unfortunately, as many have discovered in the past few years, this did not workout. We suggest downsizing before you need the money, because you will be able to save more over the long term.
We suggest basing retirement assumptions on the amount of your total savings, excluding what you might earn on the sale of your home. If you do find you cannot sell your home, you may have to wait until your local real estate market recovers, or consider accepting a lower price.
At Henssler Financial we believe you should Live Ready, which includes preparing for the what ifs in your financial life. Having a sound plan in place, and knowing you have the appropriate insurance coverage can ease the anxiety of the unknowns. If you have questions regarding your financial plan the experts at Henssler Financial will be glad to help. You may call our experts at 770-429-9166 or e-mail at experts@henssler.com.