There are 6 Big Risks that must be addressed as part of any Comprehensive Financial Plan.
Below are the 6 biggest risks we face in our lifetime. Click on each one to get a full description and solution to this risk.
Dying Too Soon
Unfortunately, we all know someone, either through personal experience or through friends, neighbors, or co-workers, who has died prematurely. The emotional impacts can be devastating and far-reaching. The financial impacts can have significant consequences, as well. The good news is that this is quite simple to plan for. Dealing with the emotional elements involved is not directly related to financial planning. However, one thing is for sure and that is that a well designed and executed survivor plan can bring a significant amount of comfort to family members while they are dealing with the grief of a loss.
Living Too Long
There is a bit of tongue-in-cheek on this one. No one is really concerned about living too long, but a shocking number of people are concerned about outliving their money. The need to plan for three decades of consumption without working is a reality especially with more and more people living long, active, and healthy lives. In addition, the reality is that the first decade of retirement can be pretty expensive. After all, most of us plan to do a lot of pretty neat things once we have the time and the freedom to do so.
Becoming Sick or Injured
This one is worth a little more attention as it has the possibility of creating the “Financial Triple Whammy!” Statistically you are more likely to face a disability during your working years than a premature death. Shockingly, however, planning for a disability event is at the bottom (if even on) the list of financial priorities for most. Unfortunately there are three significant issues to consider during your working years. The first is the fact that you will not be bringing in your normal income, yet your living expenses are very likely to continue at a rate very close to normal (not to mention the potential for unplanned/uncovered out of pocket medical expenses – deductibles, co-pays and the like). The second is that there is a real possibility that you may have to dip into savings (this is a good reason to have a robust emergency savings plan) or your long-term nest egg in order to meet month-to-month living expenses. And the third issue is that without the ability to earn an income, your ability to save or participate in retirement savings or tax qualified retirement plans could be diminished, or depending on the severity or length of your disability, permanently eliminated. These three issues are what create the “Financial Triple Whammy!”
So that is what can happen while you are working, but what about in retirement? Assuming you have planned well to fund a vibrant retirement, the risk you face here is one of a Long Term Care event. With the cost of quality care in the $70,000 per year range and rising, and the average stay in a care facility approaching 3 years, ask yourself what the financial impact of a $200,000 depletion of assets would do to the quality of life of those who you leave behind?
Everyone has a legal plan! Which plan do you have? Is yours the plan that you drafted and carefully considered how your affairs would be handled – either while you are living or after you have passed? Or do you have the government’s plan? They have one for you…just in case you never got around to it. They have also published reams of options that are available to anyone who would like to take advantage of them. Many of them are quite advantageous, can significantly help out next and future generations, lower tax exposure and direct by your wishes, not someone else’s interpretation of your wishes, exactly how and when you would like to have things happen. Of course, these options are not present in the shortened government plan. And don’t think legal planning is for when you die, it’s also for when you are living…we refer to this as “above the grass” planning.
Improper Tax Planning
We could almost repeat the summary on Legal Entanglements – which plan do you want? The IRS code is full of opportunities for those who are looking. We are very much in favor of citizens paying their legally required taxes, but there is no need to send the government any more money than you are required to. This also gets to the observation that most financial professionals are classically trained in the accumulation phase with very few being true experts in the area of distribution planning. You work for 40 years, but could live in retirement for 30 years or longer. It would be like focusing all of your golf game on the front nine, the real question is how confident are you with the back nine?
Before we get to the sixth big risk, the biggest risk of them all, let’s just offer up some “benefits of doubt.” Let’s suppose that, as the man on the street, everyone we asked could identify the first 5 of the 6 Big Risks. Then let’s suppose that these same people couldn’t just name them, but they actually sought out qualified experts in each of the disciplines that address these risks. And finally that these individuals actually followed through with the advice given and executed the recommendations. We think you know that this really is a very small percentage of the population. But even if that were all true, there is one remaining risk, the sixth big risk…and it is the biggest risk of them all.
And The 6th Big Risk® is…
Having an Uncoordinated Financial Plan
When is the last time your Insurance Agent, Wealth Manager, Financial Planner, Attorney, and CPA sat in the same room to discuss your individual financial plan? Do they even know who the other professionals on your team are? Despite their expertise, they are working in a silo. Professionals in different fields can produce excellent, beautifully crafted, technically correct work that is diametrically opposed to your wishes – it doesn’t support your most important goals and is not in alignment with your most deeply held values!
Having a coordinated plan is like being the owner of a professional sports franchise. You hire a head coach to coordinate all of the specialty team coaches and players on the field. You simply tell them what it is that you want to achieve – a better record than last year, going to the divisional playoffs, or winning the big show. Their job is to worry about the day to day and make it happen!
Be sure your Advisor or Ensemble Team has the expertise and resources to be the Head Coach of your financial plan so that you can Live Your Ideal Life!™