Most employees do not know what their Social Security benefits will be. They don’t know what their 401(k) will provide for them at retirement, nor when they will be out of debt. Few employers provide disability insurance if you get hurt or sick, so what will happen if you become sick or hurt? And health insurance is a “can of worms.” If you are self-employed, and/or running a small company, many more questions exist than there are answers. What will you do when you die or your spouse does?
Everyone should know what benefits they are going to enjoy, and communicate with a spouse about them at least annually. Things change so fast that if you think you have benefits and don’t, you can go broke in a single week! It is not hard to gather all your financial information together and review it. When you have a question, make the effort to call and get answers.
To see how this works in the real world, I want to share one of my client’s stories:
The husband passed away suddenly at age 64 and his wife had never worked outside the home. He had $20,000 of group term life insurance and they had $52,000 savings in a 401(k) account. Their home was worth $230,000, but they still had $189,000 mortgage. The wife is in good health and expected to live beyond the average life expectancy for women of 87. The husband’s funeral cost $15,000. The wife has the option of accessing Social Security benefits of $1,245 a month, or to wait another three years and get $1,570 a month.
What would you do in this situation? Their monthly living expenses before the husband passed away had been $4,000 per month. Now there’s no money to live like that. Will the wife have to sell the house since the Social Security income she could take now will basically pay the monthly mortgage and that’s it? If she does sell, where will she live and what will she live on?
This couple had not talked about early death or how one or the other would live once one of them passed away — there was never this kind of detail discussed, ever. They just went along thinking nothing would change. But it did change and the woman in this situation is in a really bad place financially. And it will change for you too. It is only a matter of time before big changes come to your world. Get prepared. Review all your benefits and make decisions today as if one of you has passed away. Play this game over and over until you feel comfortable that you have your financial situation right.
In my experience, most people die with nothing more than a simple will. Their assets have to be probated in court until they are cleared for distribution. This can take two years. The expense of having a judge decide how to divide up assets can drain another $30,000 off your assets. And in many cases, the surviving spouse still needs an income to live on. What if health problems arise?
The best way to start preparing for coming changes is to stop spending any more money until you have a Spending Plan in place and have learned how to track that plan so you can see where you are wasting money. Once you do so you will find a surplus that you can begin saving. Fund your future with this real money, that comes from getting your spending and debt under control. Then make sure you create a living trust. Transfer your assets into the trust and make sure nothing goes to the court to decide. Go to www.easylegalplanning.com and see how simple it is to get organized and match assets with a real plan document. Don’t delay and become part of the majority that leaves your family out in the cold, unable to help themselves. The memory of you that will be left will not be good. To learn more go to www.moneymastery.com or contact me: firstname.lastname@example.org.