What if I Die? My Updated Disaster Plan and Financial Plan
Never Retire Profile of the Week
Joan Didion
Born in 1934, the American novelist and essayist is probably most known today for her memoir, The Year of Magical Thinking. Written after the death of her husband, John Gregory Dunne – a prolific writer himself – Didion’s book recounts her experience of grief and has touched countless readers in the same life circumstance. For her overall contributions to literature, culture and politics, Didion was awarded an honorary Doctor of Letters degree by Harvard University in 2009 and a second Hon. D.Litt from Yale University in 2011. In 2013, President Barack Obama presented Didion with a National Medal of Arts. For a fascinating look into the life of this fascinating woman who refuses to retire, check out the Netflix documentary The Center Will Not Hold, directed by her nephew Griffin Dunne.
Who would have thought that our lives could be upended so suddenly and in such a dramatic manner?
Our current situation reminds me of something Mary Shelley once said: “Nothing is so painful to the human mind as great and sudden change.” The famous author of Frankenstein was a master storyteller when it came to events that launch a bomb into people’s lives.
As many of you know, my life took a great change when my wife died on January 15. And then, while I was grieving her death and supporting my children, the youngest being 17-years-old, the world’s attention turned to a deadly virus called “severe acute respiratory syndrome coronavirus 2” (SARS- CoV2), which causes the disease COVID-19.
These two back-to-back events, and the rising number of deaths related to COVID-19, left me pondering my own mortality and asking myself if my personal disaster plan was still applicable.
When I became a widower and single parent, much of that plan was suddenly irrelevant. Many of my life goals were based on mutual dreams that my wife and I had set for our future together.
We dreamed of travelling to every continent. We dreamed of helping our children with their lives (both financially and emotionally). We dreamed of continuing and increasing our charitable gifting. We dreamed of leaving an educational legacy for our grandchildren. We dreamed of downsizing and spending the winters in warmer climates. All these dreams changed on Jan 15th .
I needed a new financial plan. And then, when the risk of dying from COVID-19 landed, I thought even more about my financial goals and those of many clients and readers of this blog.
You may also have heard the warning bell rung by this pernicious and deadly virus. You may be asking yourself, what’s my plan? If I get sick or die, will my family be okay?
I know how easy it is to brush aside thoughts about and plans for death. In the midst of life, it feels far away. Heck, I didn’t have a Will or Power of Attorney until our third child was born. I was 40-years-old!
How has your life changed in the face of COVID-19? Have you considered all aspects of your financial planning? Let’s talk about a disaster plan.
Your Disaster Plan
Wills and Powers of Attorney
Each year, many Canadians die without Wills or with an outdated Will that does not reflect their current last wishes. I urge you to take this first step: find your Will and read it. Does it still make sense? If not, call your estate lawyer today, ask for a virtual appointment, and update the Will as soon as possible.
Of course, if you do not have a Will and Power of Attorney, then stop reading this blog now and call the lawyer (if you don’t have an estate lawyer, please call our office and we will provide referrals). Trust me, settling an estate with a valid Will is a complicated and time-consuming process – but trying to settle an estate without a Will can be nearly impossible.
Life insurance
Review your life insurance policies – both individual policies and group polices from work. Perform a mental exercise like this: if you died today, would your family be financially stable, or would their world turn upside down because of money worries? If your family would suffer financially, perform the following mental math exercise: determine the annual cash shortfall your family would face if you died and estimate the duration. For example, if my family’s shortfall is $50,000 per year for the next 25 years, then I need approximately $1,250,000 of life insurance.
The last step is obvious. Compare your existing insurance to your estimated amount needed. Are you adequately insured? If you need help with this calculation, call our office for an appointment.
Location of your documents
Let your family know where to find these documents. Make it easy for them: write down their location and, while you’re at it, also record the names of your lawyer, accountant, financial advisor, your passwords, and your bank account numbers. Tell your family where all this is stored. True personal story: after Mary’s passing, I realized I did not know the passwords to her bank accounts, iPhone, or personal computer. I’m still looking for ways to get some of them.
Joint ownership and rights of survivorship
Examine all assets such as bank accounts, investments, principle residence, and so on. If they are in your name, they will not automatically transfer to your spouse on your passing. The assets will pass through probate and, along the way, fees of 1.5% will be deducted. I suggest you make a list of all your assets and note the ownership. Then, consider if they should be transferred to joint ownership with rights of survivorship. If you need help with this discussion, please call our office.
Another true story: after Mary’s passing, I realized that she had several bank accounts in her name. Unfortunately, before I receive ownership of these accounts, Mary’s estate will pay probate fees.
Disability insurance
Although Disability insurance doesn’t apply at death, I include it here because a COVID-19 related illness could remove you from the workforce for an indefinite time (think of Boris Johnson) and reduce or eliminate your cash flow. A disability could force you to prematurely draw down your savings or reduce your ability to achieve your financial savings goals.
You can’t be in a position where you are disabled and have no income. I suggest you locate your disability insurance policy and read and understand the coverage and terms. If you need assistance, please call our office for guidance.
My Retirement Plan
In additional to my disaster plan, I reviewed my investment accounts and assessed how/if the market downturn has affected my financial independence.
Readers of this blog know that I promote a ‘Never Retire‘ philosophy, which simply means that if you enjoy doing something (like running your business), why retire at a randomly selected age of 65? Keep doing the things you are passionate about and for which you have a special skill.
I am passionate about my unique role of helping business owners “Live Well, Stay Rich, Never Retire.” After more than 25 years of working with entrepreneurs, I believe that I have developed the distinctive skills that business owners demand from a Certified Financial Planner (CFP).
Although my account values are down, I calculated that they are still sufficient to cover my living expenses for the rest of my life. In addition, since I intend to keep working (God willing), I have time to replenish my savings and provide a larger cushion to handle future life surprises.
I understand that some readers plan to eventually retire, and I respect this decision. If so, a market decline may have reduced their ability to fund cash flow needs. If you find yourself worried about running out of money before death, consider this easy exercise: take your annual cash requirements and multiply this number by 25. That figure represents an approximate amount of money needed at retirement (assuming a 4% growth rate).
For example, if my lifestyle expenses are $50,000 per year, then I should have a nest egg of approximately $1,250,000 (after tax). Do you still have this amount? If so, there is a strong probability that you have enough funds to cover your retirement income needs. In order to be more accurate, call our office and we will update your retirement projection and offer suggestions.
Let’s hope we find our way through this pandemic as safely and swiftly as possible. At the same time, we can turn it into an opportunity for good: taking care of ourselves, our future, and our families. No-one likes sudden and difficult change. But we can do everything in our power to transition to a “new normal” wisely and well.
Did this article resonate with you? What did I miss? Send me a note and let’s start the conversation.
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Call me if you in want to map out how you can Never Retire. You can also subscribe to our Never Retire Newsletter, contact us to order a complimentary book, register for one of our events, and call us to meet with a Certified Financial Planner. We offer you a range of services from a financial plan to investment advice or helping you take advantage of our investment models. Call me at 416.355.6370 or email me at richard.dri@scotiawealth.com.