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Lauren’s blog covers topics that impact your finances, your family, and your future. Is there a topic you’d like Lauren to tackle? We’d love your suggestions and feedback.

Rain in the forecast? It’s time to plan like an Easterner!

Rain in the forecast? It’s time to plan like an Easterner!

When I heard that there was a chance of rain this week in Southern California, I didn’t bet any money on the fact that it would happen. But I did do what I needed to: I pulled in my cushions from the patio and set my potted plants out from under the eaves ‘just in case.’ I suppose all that planning comes from my east coast upbringing. Where I grew up, we always expected a change in weather, and we never made plans without a backup. That was true for weddings, picnics, and even a short drive out to dinner. Yes, you could plan your day and hope for the best, but you always (always!) had a contingency plan.

When it comes to your finances, I recommend a good old, Easterner approach to planning. Why? Because even the best laid plans can go awry. Life happens, which means everyone needs a contingency plan.

Over the past week, I’ve been focused on income planning for two of our clients who are just entering retirement. It’s a deep-dive exercise in preparing for almost any possible scenario. We began, of course, with the basics: looking at their current assets, as well as their goals, values, and retirement dreams. Next, we built a plan that should fulfill their expectations. If they spend at the assumed rate. If the market remains at least somewhat reliable in its behavior. And if they live to be 100—no more and no less.

But we didn’t stop there.

I’ve always loved the Eisenhower quote about planning for battle: “Plans are useless, but planning is indispensable.” He knew first-hand that it is impossible to plan for an emergency on the battlefield because, by definition, an “emergency” is something that it is unexpected and certainly not going according to plan. My take on his wisdom is this: smart planning is what gives you the power to be flexible and adapt to stress when life doesn’t go according to plan.

So how do we plan for the unexpected? We shoot holes—lots of them—in every plan to see how it holds up. To do that, we look at the many stressors that could throw your plan off track. What if you or your spouse dies tomorrow? What if you need long-term care, and for how long? What if interest rates go through the roof, the stock market drops, or inflation escalates? And what if all of those things happen at once? Working from the best-case scenario, we look at the worst-case circumstances, and we create a plan that has the highest possible chance of succeeding—no matter what life throws your way.

What’s powerful about this approach is that it helps your plan build muscle. Pushing the boundaries helps us see what we can change to protect against stressors. The planning process also helps you understand which risks are worth taking—and which aren’t. Let’s say you’re already retired, and you have a large percentage of your portfolio invested in equities. That might be fine if you’re collecting a decent Social Security income, your house is paid off, and you have a good pension coming in.

But what if you don’t? What if you’re still paying a hefty mortgage, your Social Security income is minimal, and your only additional income is coming from your IRA? In that case, a significant market correction could create a major decline in your income so that overweighting equities could be devastating. Planning helps you understand risks, as well as the tradeoffs you may need to make if the unexpected occurs.

I’m a perfect example of someone who experienced a confluence of unexpected plot twists in life. My ‘plan’ was to get married, have two and a half kids, get a dog, and live happily ever after. When I found myself divorced with two kids and no dog, then remarried, then widowed, it was pretty clear that my best-laid plans were dust. In a way, I was lucky. All of those things happened when I was relatively young. I had time to rethink my plan, both emotionally and financially. But I never could have predicted then where I’d be today.

Here are the things you can predict (aside, of course, from death and taxes!): we will get rain again in Southern California, and we will see a market correction. By planning for whatever may come your way, you can act with knowledge rather than react out of fear. That’s the value of a carefully crafted, long-term financial plan. Armed with a financial plan that includes both the best-case and worst-case scenarios, when life takes you off track (as it surely will), you’ll have built the muscle memory to face any challenge with resilience and strength. Best of all, you can head into the unknown with financial confidence and peace of mind. That’s an empowering way to face any storm—and even find your rainbow.


Want to learn more about planning for the unexpected? See my blog post: There’s no such thing as an unexpected expense.

 

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Aging: 4 steps to walking a smoother path toward the inevitable

Aging: 4 steps to walking a smoother path toward the inevitable

At this moment, I’m on a long-awaited trip to Europe with my sister. We’re no youngsters, but we're certainly not elderly by any stretch. As we begin our six-day walking tour of the beautiful Cotswolds, I’m filled with gratitude that both my sister and I are physically fit and able to do this together. I know it won’t always be this way.

Aging is a fact that most of us don’t want to face. By accepting and planning for our (or our parents’) inevitable fragility, we can make life a whole lot easier down the road—especially when that road isn’t paved as smoothly as we would like!

Decide who will be in charge
Meredith is in her late 80s, and she has some significant signs of dementia. But now that she really needs help, she is too childlike and forgetful to know it. She refuses to trust anyone—her children, her sister, her doctors, or her financial advisor—and has decided to stay in her house alone until “I go out feet first.” The financial and emotional pressure on her family is huge.

One of the most important things you can do early on is decide who will be in charge when things start to shift. Deciding where, when, and how to live only gets more difficult, which is why it’s vital to make smart, deliberate choices before any serious decline makes doing so even more difficult—if not impossible. To build trust and ensure a smoother transition, decide who will be in charge early on, and sidestep any disagreements in the future by making it legal. Get a Healthcare Power of Attorney that gives someone else the power to make medical decisions based on your wishes, as well as a Durable Power of Attorney that gives someone else the legal authority to manage your finances when (not if!) you’re mentally or physically unable to do so.

Explore housing options.
When Mark was diagnosed with Alzheimer’s five years ago, he and Judy wanted to keep things simple by staying in their own home, but they both failed to accept how quickly his health would deteriorate. By the time they moved to a continuing care retirement community (CCRC) last spring, the disruption caused Mark’s symptoms to accelerate.

Senior housing is a conundrum. While there’s often an emotional desire to stay at home, physical and mental limitations that come with age often make staying put a challenge. Even if cost isn’t an issue (though it often is), how long does it make sense to live alone—or at home with a partner who is disabled? When is the right time to move? And to where? There are many options available, including those that are pretty well known—independent living facilities, CCRCs, and assisted living communities—as well as some lesser known options such as co-housing and naturally-occurring retirement communities (NORCs). To learn more about the options that are out there, see my blog House hunting seniors: Finding the right option for optimal living.

Plan for the costs of aging.
Michael was a lifelong athlete, and any doctor would have predicted that he’d live a long, healthy life. Even so, to be sure his income was protected, he bought disability insurance when he was in his 50s, “just in case.” It was one of the best decisions he could have made. Michael suffered a spinal cord injury when he was in his late 60s, and the policy has paid for his care and comfort ever since. Without the policy, the impact on his finances—and his family—would have been devastating.

According to the California Partnership for Long-Term Care, nearly half of people aged 65 and older who go into a nursing home will spend between $94,900 for just one year of care, and just under $500,000 for 5 years of care. Nearly 12% will face even higher costs. There are various options to help cover these costs, including insurance policies (life, health, disability, and long-term care), health savings accounts (HSAs) that use pre-tax dollars to invest for long-term medical expenses, and retirement savings. Talk to a financial advisor to create a plan that suits your needs (even those you can’t anticipate). From monitoring cash flow, determining how and when available assets will be used, and ensuring the person in charge of your Durable Power of Attorney has all the information and access he or she needs, a trusted financial advisor can help put every piece of the puzzle in the right place at the right time.

Agree on when to stop driving.
The hardest thing I had to do when my husband Ed became disabled was take away his car keys. I knew he’d be angry, so I secretly notified the DMV that he needed testing. Of course, he knew it was me who busted him, but I had no choice; I knew he was putting himself and others in danger every time he got behind the wheel. Even after his license had been revoked, I had to park the car away from our home so he wouldn’t be tempted to “just take a short little drive.” He hated losing his independence. Who could blame him?

Decide now how driving ability will be determined (and not by the senior!). AARP offers a Smart Driver Course for drivers over 50, as well as an online seminar to help talk to seniors about driving ability—or lack thereof. And, of course, there’s the DMV, as well as a family doctor who may be the first to recommend that a senior turn in his or her keys. By agreeing to an objective third-party decision maker before the time comes, no one has to feel like the bad guy, and everyone will be safer on the road.

It’s time to face the facts: we’re all getting older, and with age come change. Take the time to make some of these key decisions now, and that path will be much smoother when the time comes. Perhaps even more importantly, get help with the choices that matter most. Talk to your doctor about any changes in your health. Talk to your financial advisor about how to plan for future expenses. Websites focused on elder care and groups like AARP and the Alzheimer’s Association can also offer valuable support and guidance. For more information on getting the right help at the right time, see my blog When all feels lost, it’s time to find your A-team.

Need some guidance as you build a better plan for long-term care? This email address is being protected from spambots. You need JavaScript enabled to view it.  me to schedule a time to talk once I’m back from my trip. As always, I’m here to help.

 

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >