Your investments are properly managed by experts in a well-constructed and diversified portfolio and you are saving at the appropriate rate for your financial goals. You are all set, right? Unfortunately, no. While it is very important to save and invest your money, there are many risk areas to manage that, if left unaddressed, could derail even the best investment portfolio. While you are working, saving, and investing, life happens. Our planning process includes a dialogue that covers the areas of risk to identify, quantify, and address, whether that means formulating a solution to transfer the risk elsewhere or a deliberate and conscious decision to assume the risk. Is your financial advisor helping you with these questions?
- Are your assets protected from a liability lawsuit? There are many different scenarios that could lead to a lawsuit and end up in the same place: a judgment against your assets. Perhaps someone slips and falls on your property, or someone is drinking liquor served by you at your home and then is involved in an accident, or perhaps there is an “at fault” boating accident or car accident involving you or your teenage driver resulting in a death. Perhaps you own a swimming pool, a dog, a trampoline, an RV, jet skis, motorcycles, or have rental property with tenants. Perhaps you volunteer on a board and are held responsible for incidents occurring there. People assume that the organization will fully protect them, but many organizations operate on small budgets and cannot afford a good insurance plan. There are a million different circumstances. Nobody wants to think about terrible things happening, but if an unhappy situation were to arise that held you liable, a judgment could be attached to unprotected assets and your liability coverage on your auto or homeowner’s policy would likely not be sufficient to keep someone from going after your assets. Severe claims can easily exceed the liability coverage in a homeowner’s and auto policy which rarely tops $500,000. Remember, liability settlements and verdicts can exceed $10 million, $20 million, and higher. How much is the right amount for you? We help you answer that question.
- Do you have adequate life insurance? Is it enough when combined with your current financial assets to replace your income for your heirs? If you are retired and are no longer working, do not skip this question as not applicable to you. Remember, when you die, your spouse will only be allowed to keep the higher of the two Social Security checks, and in many cases only 50% of a monthly pension check.
- If you have grown children who have children of their own, do you know if your children have life insurance? If so, is it tied to their current employer? Is the amount enough to replace the income needed for your grandchildren? This is a question many people fail to think about. Who do you think will be needed to step up in the case of a tragedy? If life insurance premiums are not affordable for your children, you may want to make those payments as an inexpensive way to protect your grandchildren – and your nest egg.
- Like the question above, if you have grown children, do you know if their employers have adequate disability insurance? Unfortunately, while a disability is much more likely to occur than a premature death and it is usually not related to an accident, it is a highly overlooked area of proper coverage. Most people do not understand how it works and do not take the time to read their employer provided policies. Often, these employer policies provide inadequate coverage with provisions which make it difficult to qualify. For our clients, we review employer policies and help our clients understand exactly what is provided so that they can make informed decisions.
- Do you have estate planning documents that include medical directives and financial powers of attorney? When were they last reviewed by an attorney? Are your beneficiaries just the way you want them? Life is busy, and many people do not take the time to review their estate planning documents as often as they should. When there is a change in circumstances, such as a death of a close friend who is named as your executor or Power of Attorney, a new baby arrives, a divorce, or a change in health status of the people named in your documents, we need to review how they will perform. Do you have a HIPPA release that allows your loved ones to talk to your physicians about your care? Do all of your family members over the age of 18 have a HIPPA release? Is your Power of Attorney on file with your investment account custodian so that your named individual is allowed access without a fight? We look at these items on an annual basis with our clients so that they can answer confidently that their estate planning documents are in good shape.
- Have you thought about how your estate planning documents will perform for your children if some unfortunate circumstance occurs in their lives after your death? What if they are involved in an at-fault accident and are the subject of a lawsuit, or they experience a bankruptcy from a failed business, or there is a divorce? While an inheritance is not considered community property for a divorce, without adequate planning, it is not uncommon for children to unintentionally commingle their inheritance with other money, inadvertently removing that protection. Also, upon your children’s death, would you like any unused assets to be automatically directed to your grandchildren instead of your children’s in-laws or creditors? While we are not attorneys, we help you envision what you want to happen upfront with questions and forethought so that your documents are drafted by your attorney in the ideal way for you.
- Are there adequate plans in place for how you will pay for long-term care if you end up needing it? Yes, your investments can play a role, but it really depends on when the event occurs, how much money you have at the time, and the cost of care. What if the event happens earlier than expected before you have enough saved? What if it happens late in life after a lot of your money is used up in retirement? The cost of long-term care is rising at a rate higher than inflation and is more expensive than people realize. Many people do not want to receive care in a nursing home but would rather stay home which is not inexpensive. And there is the consideration of the logistics of who will be on hand to take care of you if you are relying on family. Many people want to keep their financial independence and sense of dignity as they age and would rather not be in a position to require assistance, either financial or otherwise, from family and friends. Also, long term care insurance may be an excellent way to leverage the premiums it costs to hold it if the numbers make sense. A thorough analysis of the financials but also the non-financial considerations is important to determine if long term care insurance is desirable. And obtaining this coverage must be done while you are healthy enough to qualify.
While saving and investing is important for successful retirement planning or any financial goal you may have, it is just not enough. There are so many areas of risk that can mess up your plans. Most of our clients want their money to be bullet proof with careful consideration and proper guardrails. If your financial advisor is not asking these questions, you may not be protected from the unexpected. Let our office know how we can help.