Prepare For The Unpredictable
Good Morning Relaxing Retirement Subscriber,
**This is an excerpt from the beginning of Chapter 7 of THE RELAXING RETIREMENT FORMULA
When we left Bill and Rose at the end of the last chapter, they were ready to cross The Employment Dependency Threshold and embark on the ideal life they planned for themselves. They have, after all, done terrific offensively. But what about defense?
Imagine I let them go at this point.
Imagine they sell their business and retire. They liberate their Retirement Bucket and start enjoying their lives. One cloudy day, with everything going great, Bill is driving home from a round of golf and listening to the basketball game in which his kids’ beloved alma mater is playing their hated rivals.
The broadcast is interrupted briefly with some breaking news, and Bill wants to hear more from his trusted news station. He glances over to change the station, and in the moment his eyes are off the road, a skateboarder flies down a sloping driveway into the street. Bill brakes, but hits the boy.
Of course, Bill and Rose feel terrible, and for hours the only thing either of them can do is wait to hear how the young man is doing in surgery. They finally get some moderately good news. The skater is going to live. He’ll even walk again after months of rehab, but he may never play sports again.
While there’s nothing I can do to help with the emotional toll this will take on Bill and Rose, I can make sure they’re prepared for this and other risks. They can take steps now to protect themselves from the financial fallout of such an accident, and preserve what they’ve taken a lifetime to accumulate.
Four Big Risks
Very few of our members fit the stereotype of the retiree who’s afraid of everything. Many of them, however initially postponed retiring out of a media-fueled anxiety about the risks that might beset them.
Bob and Linda were worried health insurance could bankrupt them. Kevin and Barbara had heard too many radio ads by elder care attorneys cautioning them not to let a nursing home take their life savings and their house if they ever got sick and needed long-term care. Joe and Sally had seen first-hand what the healthcare costs of a long illness could do to a couple’s savings.
There are a lot of vague warnings and dire predictions in the air, but in reality, protecting yourself from the unforeseeable on the other side of The Employment Dependency Threshold is fairly straightforward. In addition to keeping up with your property insurance, there are four different types of risk – liability, death, long-term illness and healthcare costs – to assess using three risk-management questions.
Of course, no one can avoid all risks completely, nor can you insure yourself against every potential loss without becoming “insurance poor” as Bob and Linda fear. Insurance can be expensive, as it should be. Rational assessment is critical. You need to objectively evaluate, and then manage risk. Consider how likely any given risk is, and decide how much of that risk you are willing absorb.
Of course, I didn’t let Rose and Bill sail off with only an offensive strategy in place. They also needed a great defense. They already had quality automobile insurance with very high limits, but knowing that damages could (and in this case, did) exceed those limits, they also had an umbrella liability policy in place.
Liability insurance protects you from the financial fallout of accidently doing something that hurts someone else. Very few people carry it, but it’s not terribly expensive and well worth it for the peace of mind it provides. Bill and Rose came to the smart decision to purchase umbrella liability insurance by asking the three risk management questions we’ll use to objectively evaluate the four kinds of risk:
- Without insurance, what is the potential financial loss?
- What’s the probability that I’ll incur such a loss?
- Am I willing to risk absorbing this entire loss myself?
Bill and Rose made the following assessment: The potential financial loss of having the kind of accident we envisioned for them could be catastrophic. They didn’t think it was very likely (no one ever does) but they decided they simply weren’t willing to risk having to shoulder the entirety of such a heavy loss. Instead, they would pass on some or all that risk to an insurance company.
Preparation: Purchase an umbrella liability insurance policy.
CONFIDENCE COMES FROM: Knowing you’re well prepared, even for the things you can’t predict. You’ve rigorously evaluated your risks, logically and with strong assessment tools, and you’ve protected yourself against the most likely and devastating.
Committed To Your Relaxing Retirement,
The Retirement Coach
P.S. Arm yourself with the questions you must ask to determine if your financial advisor has a legal obligation to work in your best interest at all times vs. the best interest of the company they represent. To receive a free copy of the Consumer Guide titled: “The 13 Questions You Must Ask Your Retirement Advisor (or Any Financial Advisor You’re Thinking of Working With) Before You Hire Them”, simply click this link: https://www.theretirementcoach.com/free-consumer-guide-how-to-protect-yourself
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(The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)