Ready or Not, Here Life Comes

By Philip O. Johnson, CFP®

I’m told that sunsets on Lake Powell are spectacular.  The rock cliffs turn red and the reflective water mirrors the pink and orange clouds overhead.  Houseboating there is peaceful and serene—a sanctuary from the stress of everyday life.

Such was the case for my clients, Jim and Susie (not their real names).  In August of this year they met up with friends for a week on the lake.  But then Susie became ill and they had to travel to the emergency room in nearby Page.  Two days later, she was in a Valley hospital fighting to win a vicious battle with leukemia.

A few words from the doctor had turned their whole life upside-down.  First was shock, then fear, and then the reality of living one day at a time as Susie underwent multiple treatments of chemotherapy.  She was too young to be facing a life-threatening illness.  She still had weddings to plan and future grandchildren to spoil.  How could this be happening?

My association and involvement with many wonderful families has taught me that life can change—sometimes gradually, and sometimes immediately.  Some of those events you can plan and prepare for.  Others you cannot.  There are, however, actions you can take now to help your family better cope with the challenges that come your way.

During early August another client, Dave (name changed), sat down to survey the pile of bills and unopened mail stacked up on his kitchen table.   “Why was it so difficult to make decisions?” he wondered.  Most of the contents of his Scottsdale home were in the same position his wife had placed them, even though she had passed away more than three years prior.  Without her he felt paralyzed and was becoming more and more isolated from the world.

“It wasn’t supposed to be this way,” he thought.   They had always assumed that he would die first.  In 2004, he made up a very detailed inventory of instructions for his wife.  It included a list of all their financial accounts, insurance policies, and estate planning documents.  It also named their financial advisor, their attorney, and the CPA who did their taxes.  The list included a description of their prized collection of Native American art as well as the contents of their safe-deposit box.  Compiling the three-page inventory took a lot of time, but it gave him security knowing that he had done this for his wife.  Now, ironically, it was an important guideline for himself now that his memory was slipping.

For years Dave had researched independent and assisted living facilities, but always postponed making a decision.  “I need to do this now,” he said to himself.  “I have to make a decision!”

Since Dave had no children or close relatives, he enlisted the help of friends to sell his home and make the move to an independent living complex in late August.  He let go of over half his possessions and set up a plan where he received three healthy meals a day and other services as needed.  But even more important, he would participate in activities and enlarge his circle of friends.

Four weeks after moving in, Dave suffered a stroke, but staff members (who had come to check on him) were able to quickly get him to the hospital.  Making the move when he did not only saved his life, but it simplified his life as well.  He doesn’t have to worry about his home and he can focus on his recovery and his future.

Whether you are young, middle-aged, or retired, below are some steps you can take to be financially prepared for life’s unexpected challenges.

1.  Make sure your will and estate planning documents are up to date. You should have a medical and a durable power of attorney, which will allow someone you designate to make decisions if you are incapacitated.  If you have a trust, check to make sure that the proper assets have been transferred into the trust (such as your home and any investment or savings accounts).

2.  Obtain sufficient insurance. The purpose of insurance is to protect you from unexpected large expenses, or to replace cash flow that has stopped because of death of disability.  At a minimum you should have insurance coverage for the following areas:  medical, life, auto, homeowners, and umbrella liability insurance.  Depending on your circumstances, you may also want disability and/or long-term care coverage.

3.  Build short-term and long-term savings. An emergency fund (with six months living expenses) should be ready for—as the name implies—emergencies!  Additional investments should be set up for specific purposes such as retirement, college expenses for the kids, etc.  Take advantage of qualified retirement plans such as a 401(k) or an IRA.

4.  Monitor your cash flow. Do you know where your money is going?  Programs like Quicken can help track your money and generate reports that enhance your financial planning (most banks offer online downloads).  If one spouse normally handles the finances, the other spouse should develop those same skills.  Tracking your money is a great way for couples to review their finances together, set goals, and make changes as needed.

5.  Make things automatic. This includes setting up autopays for your mortgage, utilities, credit card, anything that is on a regular basis.  Likewise with regular contributions to an investment account.

6.  Begin downsizing. It’s easy to talk about, but hard to do.  My clients will tell you, however, that it is very liberating!  A smaller home and less “stuff” means fewer steps to get around, reduced maintenance, and greater freedom to lock the door and leave.  This process also helps you focus less on the past and more on the future.

7.  Consolidate key documents into one place. Make a master list (as Dave did in the example above) of assets, liabilities, collectibles, possessions of value, and professional contacts.  Make sure that someone (in addition to your spouse) knows where the master list is located (or has a copy in case of a housefire).

8.  Finally, I would encourage you to talk about the “what ifs” in life. Too often, we avoid conversations about sad topics, when in fact, they can result in closer relationships with our loved ones.  I recall one situation where a widower father was in the late stages of cancer and he wanted to talk to his daughter about her future.  She refused to acknowledge the inevitable, however, and so this important discussion never happened.  To this day, the daughter wishes that she had talked at length with her dad about how he felt, about what things he wanted her to do after he was gone, and about how she felt about him.

Life is precious.  Be prepared.