The Sunday Mail
The Balance
To protect against floods, some people build houses on stilts or pilings.
For tornadoes, there are storm cellars. And in the event of a fire, most buildings have (mandatory) smoke detectors and fire extinguishers. There is no doubt the idea of a disaster can be terrifying, but in many cases they can be avoided — or at least insured against — with some smart planning.
The same holds true for financial disasters.
We talked to financial planners across the country about the disasters they have seen derail clients’ plans — and exactly how you can dodge them.
Putting off buying life insurance
“If you love your children, get life insurance,” says Chris Chen, wealth strategist at Insights Financial Strategists in Waltham, Massachusetts (US).
Blunt, yes, but also right on target.
Life insurance is not optional when you have other people depending on your income, he explains.
Kelly Graves, certified financial planner at Charlotte-based Carroll Financial Planners, agrees — and he is seen this disaster firsthand involving a family with four young kids.
“You cannot necessarily avoid the death,” he says, “(but) you can avoid the financial catastrophe.”
As for how much life insurance to buy?
Ten times your salary is a good starting point, but it is important to remember you are not just replacing income, but also benefits, health insurance, retirement contributions, college tuition and more. Before making the purchase, it may be a good idea to speak with a fee-only financial planner ( for example, not an advisor who is going to try to sell you life insurance) to make sure you are buying the right amount for you and your family. You can find one who charges by the hour through Garrett Planning Network.
Buying a new house before selling the old one
Just as it is rarely a good idea to leave one job before you have signed the paperwork on the next one, you should avoid buying a new house until you have officially sold the old one — or at the very least until contracts have been signed. Otherwise, you run a greater risk that the sale drags on (or falls through) leaving you to handle the responsibility of two residences — as well as two sets of property taxes, upkeep and all the other costs associated with homeownership.
“It can take (people) down,” says Susan Kaplan, president of Kaplan Financial Services Inc in Newton, Massachusetts, who currently has two clients in this situation.
“There is nothing as painful as supporting two residences.”
As for the reason some sales fall through? People often become emotionally attached to where they live, so they can overestimate the value, delaying and complicating sales. The fix? No matter how rosy an impending sale looks — even if a realtor is telling you it is a “sure thing” — do not pull the trigger on a new house before you close the old deal.
Helping out adult children . . . too much
“One of the biggest dangers that I have seen with my retired clients is the support of (grown) children,” says Kaplan. Here is the bottom line: Even couples who are fully ready to retire and have enough in savings likely do not have enough money to support their adult offspring long term — especially if those adult kids have families of their own.
Although retirement expenses will likely stay relatively constant (until health care costs grow in later life), the expenses of adult offspring are likely to increase every year.
By jumping in immediately to help when a child loses a job or does not have enough money to buy a first home, you “only delay the inevitable,” says Kaplan.
