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Does Your Retirement Plan Include Risk Management?

Since the day we start working, most dream of retirement. Now, for those of us who are in the retirement age bracket (and are willing to admit it), we know that in our youth thinking about the big step to retirement did not include aches and pains, children moving back home, grandparents becoming parents, personal and family loss, and many other issues we could not have imagined when we were in our younger years. We think and dream about living the good life throughout our golden years in this new paradigm: rarely do we include the potholes that we will probably encounter along the way.

The term "risk management" is a fancy professional term for exactly what it sounds like: managing your personal risk.  General examples of risk management may be wearing your seat belt to avoid injury, water wings on your young child to mitigate the risk of drowning, or simply putting a mat out to wipe your feet when you walk into your house or office on rainy day to avoid a wet floor and slipping. Simply put, it is the act of thinking ahead of what perils may occur, and taking steps in advance to avoid or lessen them. We usually don't see them coming; and some may sneak up on us slowly while we are aware they are approaching. Either way, with proper risk management in place, we at least have a chance of mitigating or lessening the effects of these disasters. In retirement planning, most spend the predominate amount of their time focusing on the accumulation stage of their money, and do not pay attention to the other aspects of the retirement plan. Hopefully you are working with the assistance of a Certified Financial Planner™ (CFP) who has been schooled in all facets of the 40 or so years it takes to prepare for your golden years. Way back when in 1989 when I was in my second section of my quest to achieve the designation of CFP™, the section was entitled "Risk Management and Insurance." While we didn’t discuss water wings or slippage on a tile floor, the section evolved around looking at the present and future of the client, and projecting forward the risks that the client may encounter and through the use of insurance, try to position the client properly using the proper use of insurance to lessen or alleviate the threat of monetary loss. We are all familiar with the typical types of insurance we all carry: car, homeowners or apartment, life, disability, long term care and the like, we usually equate insurance to a reimbursement of monetary loss. What I would like to look at this month is not just the money aspect, but the effect of the money aspect: namely, if in the case of need, the ability of the insured or decedents to continue to live the life previously experienced before the incident or time of need.

Excluding car and homeowners insurance and for the discussion of financial and estate planning during the lifetime of the insured, the two most utilized insurance programs are disability and long term care insurance.  Disability insurance is a coverage that will replace a part of your income should you be unable to work due to either natural (general health) or unnatural causes (car accident, slip and fall, etc). Each state has different restrictions, but the general rule is that if you have a privately owned policy; it will pay up to 66% of your income if written properly. There are many options and riders to an individually or corporately owned policy, but the most important is the definition of disability.  This clause outlines if the reason for your verifiable claim falls under the definitions defined in the policy. Some companies are broader than others, and some are acute. If you presently have a policy, I suggest that you dust it off and become familiar with it as you probably wrote it many years ago and have forgotten the details of the plan. You may call your agent and go over it with him or her for a refresher, so if you do have to put in a claim (and I hope you never do) you are at least up to date on your coverage. Many policies are written with a cost of living increase, so you may be surprised to find out how much your coverage has grown throughout the years. There are many riders that are available and this will give you the opportunity for a refresher course. If you do not have coverage, first check with your company to see if you are covered for short or long term disability. If not, this is a prime example of the need for risk management.  If you are unable to work the coverage will help you to pay your monthly expenses up to the limitations of the policy, but whatever help you have beats having the lights turned off due to lack of funds or having no food on the table.

Long term care insurance, as I've written about many times before, is a coverage that helps pay for nursing home care or at home coverage should you be unable to care for yourself. The details of the plans can be complex, but the need is simple: it will help pay for your care in case of need, while helping to preserve your spouse's assets for him or her to continuing living it the manner they have been accustomed to. In this case, we are managing the risk of your surviving spouse by conserving the family assets and having to either make a big change in their lifestyle, or literally move in with the kids... hardly a desirable choice. Be sure to consult a qualified insurance professional before you purchase any insurance plans.

Chanukah or "Chanugiving" as it has been coined came early this year: it's the first time Chanukah and Thanksgiving overlapped since 1888 and won't happen again for another 77,798 years! Christmas and all other holidays to be celebrated this time of year are just around the corner, so I wish you all a wonderful holiday season and a safe and wonderful New Year!

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