“An ounce of prevention is worth a pound of cure.”—Ben Franklin
Turn on the news tonight, you’ll surely be entertained by a host of extremely ordinary catastrophes—robbery, murder, celebrity scandal, five-alarm fire, and a natural disaster. While the media enjoys plaguing us with negativity and fear, it’s human nature for us to see the positive in the world, especially our own world. When it comes to personal finance, most people have it figured out, or so they think. So, why spend an extra second of our valuable time thinking about what could go wrong?
It is possible one could sail through life without considering protection, and perhaps succeed in the land of make-believe. However, it doesn’t matter, until it matters, and then it’s all that matters. This line perfectly summarizes the preparation or a lack thereof. As a Certified Financial Planner™, I challenge you to spend just a brief, but regular, moment reviewing your state of readiness. Based on thousands of man hours interviewing clients, here are the top five threats to your financial life and corresponding solutions:
1. Sick or hurt
While “it will never happen to me,” it will happen to someone. Over 25 percent of today’s 20-year-olds will become disabled before they retire. Despite common belief, injuries account for a small fraction of disabilities, whereas musculoskeletal disorders are the most common type of claim (i.e., back pain, arthritis, etc.) followed by cancer. The average disability then lasts for over three years. Combine these stats with the fact that less than half of Americans have enough liquidity to cover three months expenses and you have a real threat. The most efficient solution is a combination of Group and Individual Disability Insurance, favorably with a True-Own Occupation definition and portability.
With over 80 percent of the world’s attorneys residing in the U.S., we live in a sue happy society. Most Americans would have trouble affording the legal fees on either side of a case, but without proper protection, the losing party will certainly realize financial despair. Liability protection on auto and homeowner’s insurance are a critical line of defense. An umbrella policy can go above and beyond these lines of coverage to add more security. Qualified retirement accounts, assets held in certain trusts, and real estate titled by “tenancy by the entirety” are a few other ways to further shield assets. Small business owners must pay special attention to how their business is structured to limit liability. Lastly, always document disputes/complaints and rely on contracts, NOT handshakes.
Uncle Sam will always be there to collect his share—federal income taxes, state income taxes, city taxes, property taxes, capital gains taxes, payroll taxes, sales taxes, gas taxes, etc. Working with qualified advisors and CPA’s can help limit this burden. A commonly overlooked issue is the funding of pre-tax retirement accounts to chase current year tax deductions. This is not a tax savings but rather a compounding tax-postponement. Retirees often forget or downplay the effect income taxes will have on their retirement distributions. Roth options, post-tax investment accounts, and Cash Value Life Insurance all provide a future tax hedge.
4. Market volatility
The 54 percent crash in the Dow Jones Industrial Average was only a decade ago, but since then, our memory has been blurred by the greatest bull market in history. Much of investing is based on timing. A big loss can become devastating if it occurs during a distribution period. Active management of portfolios and diversification, particularly after the accumulation phase, is vital. Certain annuities can also provide security and de-risking strategies in retirement years.
Health insurance premiums continue to skyrocket, and deductibles keep going up. This added exposure can be planned for by utilizing a Health Savings Account (HSA) which allows tax deductible contributions and tax-free withdrawals for qualifying expenses. In the same vein, Long-Term Care provides a huge what-if for retirement planning. This issue is so variable and potentially expensive it escapes the scope of this article, but nevertheless requires attention.
In closing, before you give your financial plan the bulletproof stamp of approval, be sure to address each one of these threats on an ongoing basis.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
This is what could happen after the next market correction
Earnings per share have grown 119 percent faster than corporate profits.
The untold story of Nixon and the $35 gold peg
One gold standard fact known to all is that it was terminated by President Nixon in August 1971.
5 forex trading tips to help you find success in the market
Forex trading provides investors an immense opportunity to earn money. Here are some things to keep in mind when you're...
Here’s a cool new way to help you de-stress at the airport
Air travel can be really stressful, which could lead to a diminished travel experience. Southwest Airlines has devised an innovative...
5 marketing trends small businesses will see in 2019
Small business owners should keep track of marketing trends and make necessary adjustments in their strategies to boost their businesses.
- Business5 days ago
First class for free? Try these innovative tactics for an airline upgrade
- Crypto5 days ago
The benefits and risks of investing in crypto CFDs
- Economy3 days ago
Why port funding is now in the critical category
- Featured2 days ago
4 reasons why even the most experienced executives need advisors