Lisa’s Story

Lisa, a vibrant 55-year-old woman, came to me a few years after her divorce. She managed her household and finances independently for the first time in decades. Unfortunately, Lisa was diagnosed with a chronic illness that required ongoing medical care and had the potential to significantly impact her financial plans. 

She was unnerved by the amount of money she was now having to spend on traditional and non-traditional health providers, and the uncertainty about her prognosis and its potential impact on her financial future was increasing her anxiety. 

This blog will outline the four financial strategies used to help Lisa manage the impacts of her health and chronic disease based on her financial plans.

1. Maximizing Retirement Accounts

The “problem” with chronic illness is that we don’t know if it will impact longevity.  Many people live into their 90s with chronic diseases that are well-managed. With that in mind, it’s important to manage expenses for today but also in the future, preserving one’s financial flexibility and options.  

Clients who are experiencing increased expenses often look to stop “spending” in other parts of their lives. But cutting back on retirement savings should be a last resort. For Lisa, this meant making the most of her 401(k) and IRA contributions. Despite her medical expenses, it was crucial for Lisa to continue contributing to these accounts to ensure long-term financial stability.

One frequently overlooked advantage to having a tax-deferred account is that in the future, should you need to spend significant money on health care, those expenses may create deductions that might help offset the tax liability owed when drawing off retirement accounts to meet the expenses. 

401(k)s and IRAs

Employer retirement accounts like 401(k)s, 403(b)s, 457 plan, etc. offer tax advantages that can be beneficial now and potential later. Contributions to a 401(k) are made pre-tax, reducing your taxable income for the year, thereby reducing incomes taxes to be paid. Paying less in taxes means having more money for medical treatments.

Options for Self-Employed Individuals

For those who are self-employed or own a small business, a SEP-IRA or a solo 401(k) are excellent options. Those allow for higher contribution limits compared to traditional IRAs, enabling you to save more aggressively for retirement. If Lisa had been self-employed, we would have considered this option to maximize her retirement savings. 

2. Utilizing Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) are another powerful tool for managing medical expenses while securing tax benefits. For Lisa, who had a high-deductible health plan, opening an HSA was a game-changer.

Tax Advantages

Contributions to an HSA are tax-deductible, and the funds can be used tax-free for qualified medical expenses. This dual tax advantage helped Lisa manage her out-of-pocket medical costs more effectively. Moreover, the unused funds in an HSA roll over from year to year, and the account can even be used as an additional retirement savings vehicle after age 65.

Investment Opportunities

HSAs also offer investment opportunities. By investing the funds in her HSA, Lisa could grow her savings over time, providing a financial cushion for future medical expenses. This approach not only helped her manage her current medical costs but also ensured that she had resources available for any future health-related expenses.  If you are using this HSA money in real-time, be mindful about the risk you take with those investments.

3. Explore obtaining a long-term care policy

Not all chronic conditions will keep clients from qualifying for a product that might help with medical payments in the future.  In fact, some products do not do any health underwriting at all.

While Lisa was still relatively healthy, we were able to explore long-term care products that would provide some additional money should she need additional help with her care. 

You will want to “run the numbers” on these options and make a conscious decision about whether they make financial sense.  Often clients will choose to obtain the product even when the numbers are about even because having a solution reduces their anxiety.

4. Leveraging Life Insurance with Living Benefits

Life insurance is often overlooked as a financial tool for managing health-related financial burdens. However, policies with living benefits can provide critical financial support during serious health events. These tend to be employed when diseases go from chronic to acute or when insurance will not pay for treatment.

Understanding Living Benefits

Living benefits, also known as accelerated death benefits, allow policyholders to access a portion of their life insurance benefits while still alive in the case of a terminal or chronic illness. For Lisa, having a life insurance policy with living benefits provided her with a lump sum payment that she could use to cover her medical bills and other expenses.

Types of Policies

There are various types of life insurance policies that offer living benefits, including term life, whole life, and universal life insurance. Depending on your needs and financial situation, one of these policies may be more suitable. In Lisa’s case, we reviewed her existing policies and made adjustments to ensure she had adequate coverage with living benefits.

This is also a good time to review one’s life insurance benefits.  If you are leaving behind a spouse/partner or children, knowing how that insurance will impact your estate and your loved ones also is anxiety-reducing.

The Importance of Proactive Financial Planning

Managing the financial impacts of health and chronic disease requires careful planning and the right financial tools. By maximizing retirement accounts, utilizing Health Savings Accounts, exploring long-term care product options, and leveraging life insurance with living benefits, you can effectively manage these burdens and secure your financial future.

Lisa’s story is a testament to the importance of proactive financial planning. Despite the challenges she faced, we were able to create a strategy that not only addressed her immediate needs but also ensured her long-term financial stability. For more detailed insights on managing financial burdens related to health issues, you can refer to this comprehensive study: Managing Financial Burdens from Health and Chronic Disease.

Secure Your Financial Future

If you find yourself in a similar situation as Lisa, or if you want to ensure that you are prepared for any future health-related financial burdens, I am here to support you. My goal is to help you navigate these challenges and achieve your financial goals. After all, who doesn’t enjoy a bit of financial security along with their morning coffee?

Feel free to reach out to schedule a consultation at Lanning Financial. Together, we can ensure that your financial future remains secure, no matter what health challenges you may face. Because, let’s be honest, stress about finances is the last thing anyone needs.

Lanning Financial Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

By Jessica Lanning, JD, CFP®

July 5, 2022

There’s a line from the 1964 film Zorba the Greek, where Zorba (played by Anthony Quinn) upon asked if he is married, replies, “Am I not a man? And is not a man stupid? I am a man, so I’m married. Wife, children, house – everything. The full catastrophe.” It’s intended as a joke…. Laugh.

If you’re engaged in your own “full catastrophe,” it’s now time to tackle the grown-up checklist that comes with it: financial planning, taxes, estate planning, buying insurance, perhaps running a business.

Sure, you can do it all yourself, most likely to your own peril. Or, hire help.

Who To Hire and When

The following is a list of experts who can assist you with making sure your bases are covered, your affairs are in order, and confirm along the way that things are running smoothly. In most cases, the adage that you get what you pay for is true. Don’t overpay, and certainly hire wisely.

Hazard insurance agent

What this person does: They help you find homeowners’, renters’ or auto insurance. They also insure boats and RVs. They can also help you determine how much of an umbrella policy you need.

When to hire: You probably already have an agent if you’re a licensed driver with a car. Then, add on more policies as life changes and you need them — when you’re buying a home, after your first child is born (or when you become a pet parent/custodian), when you buy that boat or RV, or when you start using your car for business purposes.

Why you want a professional: Advertising suggests that you should choose your insurance agent based on the premiums (price) of the policy. Wrong. What’s more important is hiring an agent/company who is going to be there during the claims process should you have a loss.

Those people are truly worth the price differential. They will lower your anxiety and hold your hand along the way.

Also, if you have most/all your policies with one agent/company, you will get a multi-policy discount, and even more importantly, that agent can identify any gaps in coverage. The last thing you need is to think you’re adequately covered and not be.

Tax Preparer/CPA

What this person does: This person helps you with your taxes, including preparing and filing your tax return. This person should also do tax planning with you to minimize taxes both now and in the future.

When to hire: You can probably do your own taxes if you are simple — that is, you have a salaried job with a bonus, own a home, and have a spouse and kids. Once you get more complex — have stock options, investment property, own a business, etc. — you need to hire help. You will work with this person at least twice a year and probably more often.

Why you want a professional: Being successful financially is about making and saving money but it’s also about not losing money. Taxes are typically the biggest line item in a household spending plan (budget). Preparing taxes is as much of an art as it is a science. Lowering your tax bill means having more money to save or spend on other things. Staying within the good graces of the IRS is a good practice. Having an advocate should the IRS come calling is critical.

Life insurance agent

What this person does: This person helps you choose a life insurance policy and/or annuities that meet your needs

When to hire: When you have people depending on you financially, such as a spouse or child. You may also want to consider buying life insurance if you have significant debt, such as a mortgage or student loans.

Why to hire a professional: When you’re getting started in life, a simple term policy may be all that you need and can afford. You need someone who can determine how much that should be and explain to you other options as your income increases and your life gets more complex.

Permanent life insurance allows you to build an asset that you can use for a variety of reasons in a cost-effective and tax-efficient way that can be of a huge benefit to your family. It’s going to look pricey.  Someone is going to tell you to “buy term and invest the rest.”  Careful.  Do not overlook its opportunities.

Estate planning attorney

What this person does: This person helps you plan for the distribution of your assets should you become incapacitated and after you die. This might include creating a will, living trust, health care directive or powers of attorney. There’s no worse intersection on this planet than death, family, and money. Having the proper documents in place will save your heirs time, money, and anguish. It’s a great act of love to your family to get this done.

When to hire: After you’ve accumulated assets (a house, savings, retirement accounts, investments), gotten married, or if you have minor children. You should also consult with an estate planning attorney if you’re in a second marriage and have children from a previous marriage.

Why you want a professional: Sure, you can do this online or use your company’s legal support benefit. Nothing, however, will replace personalized attention and making sure these documents reflect the most recent laws, conform to your wishes, and actually get completed.

Business attorney

What this person does: This person helps you with the legal aspects of running a business, such as incorporation, contracts, and leases, preparing a business for sale, and keeping employment and legal issues to a minimum. These people typically work with lots of other business, and the “cross-pollination” of advice from one to the others is invaluable. They can keep you out of trouble and in a creative, profitable trajectory.

When to hire: When you’re starting a business. If this person cannot scale with you as you grow, you’ll need to hire another one who can handle more complex issues as the business gets bigger.

Why you want a professional: Again, you can do business formations yourself, but you will learn little from the process that will need to be repeated, the cost to set up a business is not that high, and you want to build the ally. Business owners tend to see their attorney as a partner in their success. Don’t deny yourself that support.

Financial planner

What this person does: This person helps you plan for your financial future, which might include saving for retirement, investing, buying insurance or paying down debt.

When to hire: When you have specific financial goals you want to achieve, such as saving for retirement or college, or when your finances get so complex that you need the additional set of eyes and brain cells.

You might also want to consult with a financial planner if you receive a windfall (inheritance, bonus, etc.), or experience a major life change.

Why you want a professional: Unless you want to spend your free time becoming a financial planner so you can do everything yourself, get someone in your corner to help. A financial planner can also be your “general contractor” to hire all these other experts as “sub-contractors.” Financial planners are excellent at identifying who you need to hire and when. As your assets grow, that person can be making mid-flight corrections with you and increase the chances of your financial success.

Social Security and Medicare specialist

What this person does: This person helps you understand how Social Security and Medicare work, and how to make the most of these government programs.

When to hire: If you become disabled, when you’re 60 years old and probably again at 64 years old. and want to know how to maximize your benefits under both programs that makes sense for your particular situation.

Why you want a professional: The rules for Social Security and Medicare are Byzantine, ever-changing, and there are lots of ways to “game” the system. You want someone who knows how to do that so you don’t have to and can get the most out of these programs. This is particularly true if you are married.

Elder care/long-term care specialist

What this person does: This person helps you plan for the care of your or an elderly family member, which might include in-home care, assisted living or a nursing home.

When to hire: When you have an elderly family member who needs assistance with activities of daily living, such as bathing, dressing, eating or using the bathroom. You should seek a consultation about long-term care options when you become seriously ill or when you turn 60, whichever comes first.

Why you want a professional: Making long-term care decisions is difficult and rife with pitfalls that you cannot see because you don’t do this every day. You want to make the most conscious decisions you can about your care when you have the cognitive and financial ability to do so. When those abilities go away, someone starts making those decisions for you.

Surround Yourself With Good People

When hiring any of these professionals, do your research and your due diligence. Ask friends and family for referrals. Ask good questions. Do not be afraid to have multiple meetings before you engage in a contract. This is your life and your money. These people should be helping you make good, conscious decisions about both. If not, move on.

As Zorba reminds us, being an adult comes with a lot of responsibility. But it doesn’t have to be all doom and gloom. By assembling a team of experts to help you with the various financial aspects of your life, you can take some of the stress out of being an adult. And, who knows, maybe even laugh along the way.

If you need a referral to any of the above professionals, please reach out.

Lanning Financial Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

Plan first, tools second, revisit often.

This adage applies to life insurance probably more than any other tool in your financial planning toolbox.  In most cases, you bought it with the intention of keeping it for 20 years or more.  A lot of life happens in five to 10 years, let alone 20.  One of the biggest changes during that time is your own maturity – your thoughts and values change, your needs change, and your desire for security changes.  What made perfect sense and what got your attention 5, 10, or 20 years ago is probably quite different than what you would notice and pay attention to today.  And while you’re going about your life, the insurance industry has probably introduced new products and stopped selling others.

Remember to go back to your plan and then look at the tools (products) you’re using to make those plans happen.  Evaluate whether a particular financial tool is still a viable part of that plan or no longer serving you.  A life insurance review would be valuable.  Most life insurance agents will do these for “free” as a way to sell you something else.  Find an ethical one who will give you an honest answer, even if it means losing a commission.  For life insurance, consider these questions:

• What might I need life insurance for?
• Do I have people who are financial dependent on me?  For how much longer?
• Does the policy I have any cash value?
• How is my health?
• How much do I need?
• How might I use life insurance to meet multiple financial planning needs?  (long-term care, cash reserves, retirement income supplementation, college education funding, etc.)
• How might I use pre-tax dollars to meet those premiums?
• What is the value of my estate and how much might my heirs have to pay in estate taxes?

Once you’ve explored some of these questions in present time, your answers from years ago may have changed.  If so, time to choose a new tool.

When a life insurance death benefit comes in handy

I sell quite a bit of life insurance, but rarely for death benefit purposes.  Which may sound strange to some of you because isn’t that what life insurance is for—when someone dies?  Well, yes.  I just happen to use other features of the product to create “life benefits” as well.

In presenting my “life benefit” plan to use life insurance, I often say, “and the death benefit just comes along for the ride.”  Ultimately, clients are paying for the death benefit even if that’s not their focus.  Sometimes it’s nice to have that passenger on bus.  Because when the unexpected or the untimely happens, the death benefit is nice to have.  It’s the difference between scrambling for donations from family and friends and knowing that you have money to take time off to grieve, to support your loved ones and business partners once you’re gone.

As many of you  know, I’m adamant about my clients getting their estate planning done.  It is a great act of love to make sure your affairs are handled and your family and friends know what your wishes are after your death.  I come from a long line of dead people, so trust me when I say that there is no worse combination on this place than death, family and money.  The second thing you need to do is get your life insurance in place early and often.  Get it when you’re young and healthy.  It’s one of those things that you’d rather have and not need than to need and not have.

For whatever it’s worth, I’m not a big fan of life insurance on kids, but if you can get a cheap rider on your own policy, it might be worth having.  I can’t imagine anything worse than the loss of a child.  Having time to take off work potentially without pay and grieve is huge.

Here’s what I do think is important:  Tell your family and friends when you’re alive how much you love them and what you respect and appreciate about them.  Record it, at least your voice, so they can hear it in the future.  Those of us left behind often forget the sound of our loved ones’ voices, and to have them for hard times is a beautiful gift.

Since when did life insurance get so sexy?

The problem is that people often think of life insurance as another one of those things that you have to buy when you become a grown up, get married and have children.  It is yet another annual expense that seemingly has no value at all unless one dies.  Then to add insult to injury, the dead person doesn’t even get to use the death benefit proceeds.  It’s no wonder that people joke that life insurance is designed to keep you broke while you’re alive so you can die rich.

If this is your belief system, you might need to get your mind right.  In all honesty, there’s some truth to the above statement.  If you have young children, business partners, or dependents, you do need life insurance so that if you die, there are assets available to support them.  Or, if you stand to die with more than $1 million, then you might want the money to pay estate taxes.  In any event, you’re buying the policy for death benefit purposes.

But you can buy life insurance for life benefit purposes, and this is where people are missing the opportunity.  The article quoted a planner saying that “There are people who are making at least $250,000 a year and who will be targeted for higher taxes….  Cash value insurance is a Roth IRA for rich people, and they can tap that money judiciously.”  This is a true statement.  Cash value life insurance contracts are one place where you can grow money tax-free (well, tax-deferred if you want to get technical) and access it tax-free (if the contract is created and funded properly).  I spend my days showing people how to create tax-free retirement income, create buckets of money to meet education funding goals and disability income supplementation, and how to create “Roth IRAs on steroids” for employees who can’t put enough money away in their company’s retirement plans or business owners who have not adequately saved for retirement.  I show people how to keep their social security benefits from being taxed.  I show people how not to outlive their money.  Life insurance, believe it or not, can play a huge role in making that plan work.