Over the past few months four people very close to me have experienced a serious, unexpected medical crisis. This has been a stark reminder of how quickly life can change and plans can be disrupted. Financial planning projections are based on typical retirement ages and average life expediencies. But we also need contingency plans for events that may disrupt carefully devised plans.
According to the Council for Disability Awareness, more than 1 in 4 of those who are currently 20 years old can expect to be out of work for a least a year due to a disabling condition before they reach retirement. On average disability lasts 31.2 months and 90% of all disabilities are caused by illness rather than accidents. Over half of all bankruptcies and mortgage foreclosures are a consequence of disability. It is essential to incorporate contingency plans into your financial planning. Below are steps you can take to help plan for the unexpected.
- Maintain an emergency fund of easily accessible cash equal to 3 to 6 months of expenses.
- Maintain a diversified portfolio with a mix of stock mutual funds and safer interest earning investments such as CD’s and bond funds. If you experience a prolonged illness you may need to take unplanned withdrawals from your portfolio. Keep a portion of your portfolio in safer investments to avoid being forced to sell at a loss if the stock market is down.
- Consider purchasing long term disability insurance to cover most of your expenses while you are unable to work.
- Keep your consumer debt under control and pay-off high interest credit cards.
- Manage your non-discretionary spending to provide some room to scale back on expenses should an emergency arise. If you become disabled you may need to cut back on vacations, eating out, and entertainment but you will still need to buy groceries, pay utilities and pay your mortgage or rent. When buying a new home or car purchase something you can afford on a reduced income, pay-down or re-finance your mortgage and make extra payments on student and vehicle loans.
- Embrace a healthy lifestyle, many health conditions are out of our control, but we can improve our health by living a healthy lifestyle. You can reduce the chances of a medical crisis if you quit smoking, exercise regularly, eat a healthy diet, maintain your weight and get regular check-ups and screenings.
- Keep your estate plan in order, maintain a current will, financial power of attorney, health power of attorney and beneficiary designations.
- Consider term life insurance if others are dependent on your income to maintain their current standard of living.
- Finally, don’t procrastinate on accomplishing things that are important to you. Take your daughter skiing, visit your family, book a cruise or take a trip to Ireland. Make plans today, you never know when you or someone you love will no longer be healthy enough to share a special experience.