I think I might be getting old (I am almost a senior!). Time passes quickly and with age comes reflection. What I have learned from my journey is that most people view their lives in two possible universes as it relates to their retirement. The first universe deals with exposure and risk management. The second universe deals with the concept of recovery.
In the first universe, one tends to look at what we own and what might be exposed to unsecured creditors. Items that we own include the house, the pension, the company retained earnings, life insurance and non-registered investments. Assessing the risk of losing those assets to an unsecured creditor is tricky. The probability of a lawsuit is very remote, but it is not zero. One carries third-party liability insurance, which should protect one’s assets from a successful lawsuit. But it is not 100 percent certain. The insurance may not cover the liability due to negligence, for example. In this universe, people are balancing the idea of the remote likelihood of a lawsuit and third-party liability insurance to cover that successful claim.
The second universe deals with the idea of recovery. The question one has to ask is not what can go wrong but whether you have the time and energy to recover if something does go wrong. For example, if you lost your house to an unsecured creditor, for whatever reason regardless of how remote, what would it take to recover? If the house is worth $1.5 million it would cost approximately $3.0 million in pre-tax income to recover. How will you make that kind of income at your age?
The same goes for life insurance. If you lose your life insurance to an unsecured creditor, there is no way that you can recover that particular life insurance policy. It is gone forever and, in fact, you may never be able to replace it because you have had a critical health event or you’re just too old. What does that mean for your estate plan? How does that well-thought-out plan look without life insurance for its execution?
This recovery universe extends to your health as well. We all want to be as healthy as possible for our retirement years. But what happens if you get cancer or have a stroke? How do you recover from those critical health events? Do you have a plan in place? Perhaps a change in eating habits. More exercise. Connections or referral networks to specialized health practitioners in place.
I submit that the second universe is the universe people close to retirement should be focusing on. The recovery universe. The later stages in life are all about recovery – the concept of recovery from unforeseen financial events or a critical health event. Do you have a recovery plan for those situations?
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