Six life events that affect your financial plan – and how to prepare for them

If there’s one thing we can all be certain of in life, it’s having to adapt to change. As Grammy-winning singer and entrepreneur Jimmy Dean once said, “I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.”

Although you may need to quickly adjust your financial “sails” from time to time to respond to unexpected life changes, there are many other events you can prepare for in advance to facilitate future course corrections. Here’s a look at six major life events that can alter your financial plans, along with some steps you can take now to ensure you’re prepared for the future.

1 – Buy a house, a second home or an income property

Most Americans (64%) own their own home; 11% own investment properties that they will rent out or resell. If you’re one of them, your home and other real estate can play a key role in your savings and investment strategy — and your estate plan.

How to prepare
You will most likely purchase home insurance to cover unforeseen damage, theft and personal liability; and you can also have flood insurance to protect your property. But don’t overlook the importance of properly titling the property you’re buying, either. Depending on your personal and business circumstances, you may hold your real estate individually, jointly, or in a vehicle such as a trust or limited liability company to provide asset protection and facilitate estate/transfer tax planning.

2 – Marry or remarry

A new marriage is the perfect time to combine and update your financial plans and prepare for change in advance. If you have substantial assets (or prior “learning experience” via divorce), creating a prenuptial agreement BEFORE you get married may also be a good idea.

How to prepare
Don’t forget to review your life, health and disability insurance and make any necessary changes to coverage and beneficiaries as soon as you get married. If you both work, decide which employer health insurance is the best deal and drop the other.

Other actions you should take to prepare for future changes:

  • Rename accounts, assets and real estate to be held individually or jointly with your new spouse.
  • Review your estate plans, including your wills, trusts, powers of attorney and health care powers of attorney.
  • Update your savings and investment strategies based on your views as a couple on your new goals and risk tolerance.

3 – Start a new business

If starting a new business is one of your goals, you’ll want to make sure your financial plan and investment strategies are on track to create the money you need to achieve that goal.

How to prepare
When you’re ready to set up your new business, you and your lawyer will decide on the right business structure: sole proprietorship, partnership, limited liability company or limited partnership. You will also want to separate your personal and business accounts and consider setting up trusts to protect your personal assets from exposure to business risk.

As with other life events, make sure all of your assets are titled correctly; your beneficiaries are up to date; you have adequate life, health, disability, accident and liability insurance to protect your family and business; and you revise your estate plans and documents as needed.

You will also need to develop an exit strategy, which could involve buy/sell agreements funded by life insurance. If it’s a family business, you’ll need a plan for next-generation ownership/management, perhaps funded through trusts and donation strategies.

4 – Receiving a settlement, inheritance, windfall, large bonus, or proceeds from the sale of a business

Whether it’s a rare event like winning the lottery or a more common event like receiving an inheritance, you may have to accept the arrival of a single large sum at some point in your life. .

How to prepare
Before doing anything else, your first step should be to consult your advisor and a competent tax attorney to understand the tax and income implications of your windfall.

Your advisor can then help you explore how the extra money could be used to:

  • Reduce your debts and/or save more for the future.
  • Set aside more for your beneficiaries through donations to trusts.
  • Refine your investment strategy.
  • Update your estate plan to account for this new addition of wealth.
  • Splurge on a “luxury” item such as art, jewelry, a boat, or a family travel experience.

5 – Manage a personal health crisis

Falling seriously ill, injured or disabled is not as rare as one might think. In fact, 56 million Americans today, or 1 in 5, live with a disability; and 38 million (1 in 10) are severely disabled. That’s why you need to plan ahead for the effect a debilitating health condition could have on your financial plan.

How to prepare
Obviously, maintaining adequate health insurance coverage at all times is paramount. And buying disability insurance is also essential, especially if you are self-employed. It may make sense to consider long-term care insurance or a hybrid product that incorporates the features of both life insurance and long-term care coverage.

Remember the importance of having joint accounts, powers of attorney, a healthcare proxy, and advance directives in place so the people you rely on can manage your financial affairs and healthcare decisions. health if you can no longer do it. Trusts are also a great way to provide continuity in the management and distribution of cash to your spouse and family when you are incapacitated.

6 – Retirement

Leaving work to retire and pursue your “second act” can be one of life’s most cherished and anticipated events. But it can also bring unexpected challenges because your retirement could last 30 years or more – and it’s hard to predict what the cost of your healthcare (or otherwise) might be in your later years.

How to prepare
Chances are, having enough income to last through your retirement is already one of your top financial priorities, and you’re already maximizing contributions to tax-deferred investment accounts. As you get closer to retirement, your advisor may recommend that you switch from stocks to less volatile investments to keep your asset allocation in step with your changing needs and risk tolerance. Your advisor can also help you prepare for the possibility of rising health care costs in retirement by self-funding these needs and/or purchasing insurance.

You may also want to start thinking ahead about buying a home or condo where you want to live after you retire – near your kids, in a warmer climate, or in a country community. full service club.