You know what they say—change is the only constant in life. And while some changes are small, many can significantly impact your life, family, and especially your finances.
These changes can come with some blind spots. In this blog, we’ll help you prepare for the unexpected challenges that life change can bring. We’ll cover seven major life changes you might experience, especially near retirement. Along with that, we’ll offer some advice on how you can be as prepared as possible for the unexpected.
1. Aging Parents
Parents rely heavily on their extended family as they age. As you near retirement and have your own children and even grandchildren to look after, it’s easy to feel caught in the middle acting as caretaker for both. That, and you may shoulder some of the expenses and responsibilities. You may be your parents’ power of attorney and have to make significant financial or medical decisions for them. Sometimes, you may find yourself footing some of the bill if your parents mismanaged their finances—especially with unexpected taxes from selling the family home or the rising costs of long-term care.
While this is daunting, you have the opportunity to prepare well so you can lovingly serve your parents when they can no longer serve themselves. Having a solid plan in place for their future can help you honor them all the more.
How to Prepare: Have a conversation with your parents about their wishes—it’s helpful to have a financial advisor or attorney in the room to facilitate the conversation. Keep the communication channel open and honest. Review their financial and legal documents with trusted professionals to understand their wishes and plans. Discuss plans like long-term care and how much they have set aside for their goals.
2. Divorce
No one ever sets out to get a divorce, but unfortunately, it does happen for some couples. Not only is it a painful season, but it can be a stressful one—you will have to determine who gets what and pay significant legal fees or alimony. Beyond that, you’ll have to navigate dividing your assets, changing your name on accounts, and updating your estate plans.
At Generous Wealth, we’ve walked with many divorced individuals through the pain and stress of the transition, all while providing hope and encouragement for the future. It can be a difficult season, but also an opportunity to realign your financial plan for the future and have a fresh start.
How to Prepare: While “preparing” for a divorce is not ideal, there are steps you can take in the midst of the process to keep your finances healthy. Work with a skilled financial planner to help you navigate the division of various retirement accounts, joint bank accounts, and shared debt. Then, use it as an opportunity to review your estate plan and beneficiaries with a trusted attorney.
3. Loss of a Spouse
As you near retirement, you will need to consider what will happen when you or your spouse passes away. It’s not an easy topic to consider, but discussing it with one another will give you more peace of mind and help you prepare better for the future.
The loss of a spouse can cause financial consequences like the loss of income from Social Security benefits or salary, burial costs, and death taxes.
How to Prepare: As you age, you may want to consider changing your life insurance policy based on your and your spouse’s health, financial circumstances, and budgetary needs. A financial advisor can provide clarity on what insurance you might consider so you can avoid overpaying or overinsuring.
Additionally, estate plans can help you prepare for a spouse passing away. Be sure to update your estate plan so it includes your and your spouse’s final wishes, funeral arrangements, and beneficiaries.
Emergency funds can be helpful to prepare for the loss of a spouse as well. Having at least three months’ worth of expenses saved can ease the burden of the loss of income or help you pay burial or death expenses.
4. Sudden Illness or Injury
Illness and injury can become a greater setback as you age. If you or your spouse are predisposed to illnesses or conditions, recovery can be longer. An extended illness can mean hospital bills or expensive medications. An injury can mean months of physical therapy or the loss of income from the inability to work.
Medical bills aren’t getting any cheaper—it’s best to have a plan in place without being paranoid or stressed. Having a plan can help you focus on recovery instead of unexpected expenses.
How to Prepare: If you are nearing retirement or already retired, you might need new health insurance that isn’t employer-sponsored. Working with an insurance specialist can help you determine what will be best for your age and health. If you or your spouse suffers from a chronic illness or injury, you might also be eligible for long-term disability during your working years.
This is another area where an emergency fund can come in handy. Having some extra cash on hand can be helpful if you’re not able to work or have to pay for expensive prescriptions or care before insurance benefits kick in.
5. Receiving A Windfall
Receiving a windfall—like money from an inheritance or sale of a business—can initially be seen as a blessing. For many, it can quickly become a burden. As we like to say here at Generous Wealth, the easiest money to spend is someone else’s. Many people who receive a significant windfall have negative savings only two years later. Windfall should be managed as carefully as your regular income, and with a heavier tax burden to consider.
How to Prepare: If you suspect you are going to get a windfall soon, consider how you will allocate the money. We often recommend using a portion to pay down high-interest debt. After that, consider donating some to a cause you care about—charitable donations will help you avoid some of the capital gains taxes. If the windfall is from an inheritance, many families choose to use the funds to take a trip together to remember and honor the person they lost.
6. Losing Your Job
If you are still in your working years, a job loss can be incredibly disrupting emotionally, mentally, and financially. Not only does it throw off your routine, but it can cause a lot of significant financial stress. You may be able to receive unemployment benefits for a short amount of time, but those benefits might not be able to carry you through to your next job.
How to prepare: Maintain a solid emergency fund throughout your working years to ease the burden of everyday expenses. We never recommend withdrawing from retirement accounts to make up for lost income—that money will serve you much better in the future!
7. Selling A Business
While not as unexpected as some of the other events on this list, selling a business is a significant change in and of itself. Not only are you handing off your business to someone else, but you’re working with lawyers, CPAs, and financial advisors to finalize the sale. Afterward, you have a significant amount of money you didn’t have before.
How to prepare: As you prepare to sell your business, consider how much of the payout you’ll have left after paying brokers, attorneys, and other professionals you hired for the job. Then, work with a CPA to determine strategies to minimize capital gains taxes. You’ll still have a decent amount of money left over—time to work with a financial advisor to help you allocate that money wisely to retirement accounts, investments, and savings.
Prepare for the Unexpected With A Trusted Partner
The unexpected is always just that—unexpected. But with a trusted partner by your side, the unexpected can be less intimidating. With our skilled team of financial advisors, we can help you make a financial plan that fits with your life, circumstances, and goals. No matter what life throws at you, we can help you adjust that plan as needed so you can have sure footing even in unexpected circumstances.
We’d love to have a conversation with you! Schedule a complimentary call with our team today.
The information in this blog is for educational purposes only. It is general in nature and does not take your personal circumstances into consideration. It is not intended to be a substitute for specific, individualized financial advice and you should obtain legal and tax advice from a qualified tax professional or attorney. You should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice. The information and commentary provided in this blog, including any strategies, methodologies, references to tax laws, and opinions, are expressed as of the date hereof and are subject to change. EverSource Wealth Advisors, LLC assumes no obligation to update or otherwise revise these materials.
To the extent this blog references investing or investments, know that past performance of any investment or investment strategy should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance or the accuracy of the information herein. This material is provided for informational purposes, is intended for your use only, does not constitute an invitation, solicitation, or offer to subscribe for or purchase any products or services. It is likewise not a recommendation that you purchase, sell, or hold any security or other investment or pursue any investment style or strategy