As I often do, I spoke with a prominent local estate planning attorney about what she’s been seeing and hearing from clients. I wanted to know if there were any topics she’s discussed with her clients I may be able to address in an article. This is the product of our discussion. Stick with your plan. This attorney expressed concern with frequent client inquiries about terminating Long Term Care Insurance policies they’ve paid premiums into for years. The clients’ concerns were most often due to premium increases. Regardless, these policies are designed for home healthcare, assisted living facilities, memory care, etc. and therefore become more important with age. Premiums typically go up, because of increased cost of care and, or claims paid out to policyholders. Translation; demand is growing for eldercare and individuals are heavily using their policies. Very rarely does it make sense to cut out such a safety net especially in today’s healthcare environment.
Concerns about the cost of Long Term Care insurance are common. However, at the forefront of the minds of many seniors’ family members is the cost of this type of care without insurance.
As I manage my clients’ money I hear other things such as concerns that a client’s investments didn’t beat the overall market this year, their accounts went down last month or they’re tired of paying life insurance premiums and would rather invest them. I hear these concerns and understand them, but none are grounds to abandon a well thought out financial plan or the strategies implemented.
Trust your financial plan. When you sit down to discuss your goals with a financial professional a tremendous amount of thought goes into formulating specific, measurable and well-defined objectives. The process continues as you determine what is achievable in the context of your specific financial situation. How much can you save? What goals are of the highest priority? What factors put the goals at risk? How much will you need to accomplish each objective? What level of risk is appropriate for your investments? Then, as a financial professional, we perform analytics to further define the goals and develop appropriate strategies to pursue them.
My point in discussing this process is to encourage you to trust in the plan that is the product of intense thought, scrutiny, analytics and discussion. Second guessing the plans you’ve put forward because of temporary external factors such as spikes in the market or short term fluctuations in education costs can be foolish. Long term trends typically hold true, so don’t get bogged down in short-term thinking.
Stand by your investment strategies. No one likes losing money and no one likes underperforming the broader market. However, what are you really trying to accomplish? For most investors, in the short term, I will venture to say that neither losing money, nor underperformance matters if you are on a path toward achieving your goals.
When you develop your investment strategies they should be in response to the financial plan you and your financial advisor worked so hard to produce. As such, you have determined goal rates of return, time horizons and risk tolerance in order to establish an investment strategy.
My objective in managing money is to take the least amount of risk in pursuing whatever rate of return is required to reach a goal. This may mean investing aggressively and losing money in the short term in an effort to produce growth over the long term. It also may mean underperforming the broader market. Consequently, if the client desires to preserve capital and achieve a modest rate of return, underperformance may not be a concern. It may be in their best interest to invest in such a way that limits risk and volatility to pursue that goal.
Whatever the case, if you trust your plan and trust your advisor, stand by your investment strategies knowing that it is the right approach in addressing well thought out goals, not just make you rich.
Stick with your insurance policies. I believe that insurance is the most misunderstood portion of a financial plan. The most common client response I get when we begin discussing insurance, regardless of the type, is, “I don’t like insurance.” What does that really mean? I think insurance gets a bad rap.
Ask yourself… What happens to my family if I die prematurely? What happens if I become disabled and I’m unable to work? What if I develop dementia or Alzheimer’s? Each of these situations has the potential to wipe out all of your reserves and retirement savings. Specifically, I’m talking about Life, Disability and Long Term Care Insurance.
No one likes paying into an insurance policy and not getting anything back. However, what’s misunderstood is that more than providing piece of mind, insurance is crucial to protecting all of your hard work, managing the “What if’s” in your life and a significant wealth building tool.
Life Insurance can turn $3,000 a year into $2,000,000 overnight. Disability Insurance can turn $3,000 a year into $5,000 a month in income if you can’t work. Long-Term Care Insurance can turn $3,000 a year into $150 a day in benefits if you require home healthcare or are required to live in a memory care facility. Nothing else can do that. You can’t realistically invest your insurance premiums and turn them into benefits this significant.
Therefore, if it fits into your plan, don’t give up on your insurance policies or become discouraged thinking you may not collect on years of paid premiums. Each aspect of your financial plan has a specific purpose and insurance is not different. I’ve always said that you don’t need insurance until you do… profound right? Stick with your insurance policies.
In conclusion, a lot of hard work and thought goes into creating an effective financial plan. Each strategy exists for a reason and provides a means to smartly addressing your financial goals. Don’t lose sight of what you’re trying to accomplish. I encourage you to begin planning now, invest your money early and get insurance while young and healthy.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Christopher Honer is a financial advisor with Brady & Associates in Minden. Reach him at firstname.lastname@example.org.