President and General Dwight Eisenhower famously said,
“Plans are worthless, but planning is everything.”President Dwight Eisenhower, speech, 1957 (1)
Planning gives you an understanding of what needs to happen to achieve a certain goal. What goal is up to you. However, wishing for that goal doesn’t work. Achieving that goal takes effort, and you have to know what to do and in what sequence to do it.
However, life happens and plans will have to change. The effort to think through what needs to be done remains worthwhile. That, I think, is what Eisenhower meant.
Think of planning as the difference between treating the quarantine as a vacation versus worrying yourself sick about money.
If you don’t have a goal, that’s a problem you need to fix. Frankl treated goals as essential elements to survival, and perhaps to happiness.(2) And they involve taking risks.
Failure is the mark of a life well lived. In turn, the only way to live without failure is to be of no use to anyone.Brandon Sanderson
Part of a life plan is financial. Whether you like to collect money or not, and for many people it’s a necessary evil, without a plan, you’re likely to find yourself in a situation you don’t want. Thomas Jefferson spoke of workers as “wage slaves” and there is a satisfaction in working for oneself, whether highly successful or not. Probably the next level of satisfaction comes from knowing — if you must work for a paycheck — that you can tell your boss to take a hike without financial hardship. You get to that state through financial planning and disciplined spending.
You’ve seen them: the families, not uber rich, who have been able to take the coronavirus as a true vacation, as a time to relax and recharge, while the rest of us are fretting and struggling. Yes, they exist, and you could be one of them.
Planning involves preparing for life’s uncertainties and risks. Insurance is part of that plan. Investopedia reprinted an article today on the four types of insurance everyone should have. It’s nice to see articles like this, but the information is rather out-of-date. According to them, the four types you need are:
c. Long term disability
Let’s set auto aside. It’s a legal requirement and the risk of an accident is quite high.
So what’s wrong with the remainder of this list?
Life insurance is essential. Everyone dies. Your survivors get nothing until your bills are settled, and if there isn’t enough to cover your obligations, they get nothing of monetary value regardless of what you said in you will. It’s pretty ugly and can leave your loved ones in a jam and tarnish their memory of you.
Health insurance is essential. Everyone gets sick. Having a relationship with a doctor is important. An ER physician sees you once and won’t know how you might have changed since the last visit apart from what’s on your chart, if there is one. A good Primary Care Physician will know, and plays a key role in early detection of disease. And we should all know by now that early detection means lower costs, less recovery time and most importantly better outcomes.
With Medicare, healthcare isn’t optional. You get Part A on turning 65 at not cost if you have worked the appropriate number of quarters. Part A covers major medical expenses. This is a charge for Part B, which covers outpatient services, and a penalty if you don’t sign up when first eligible and aren’t covered by another plan (e.g., employer coverage). There also a penalty for Part D, the drug plan, if you don’t sign up immediately and don’t have comparable other coverage.
However, necessary isn’t the same thing as sufficient. Fidelity Investments has estimated that each adult will encounter an average of $285,000 in medically related costs that Medicare will not cover.(4)
And that’s before considering nursing home care. Medicare covers basically one month, with the balance on you. In New Jersey, nursing home rates range from $9,000 to $14,000 per month — so that can get to be quite a sum fairly quickly.
You can protect yourself against these costs by
- Establishing an HSA account if your company supports that option (that’s not an HRA, they’re very different);
- Purchasing long term care insurance (which won’t cover all the costs, and in expensive areas, may actually cover relatively little of the cost);
- Impoverishing yourself and going on Medicaid; or
- Establishing permanent life insurance with living or accelerated benefits. You can borrow against the cash value if needed. The living benefits rider permits part of the death benefit to be used for long term care, chronic or critical illness (what’s allowed varies between insurance companies).
Long term disability is a question mark. Protecting income is important, but long term disabilities (defined as being disabled two years or longer) just don’t happen all that often. Further, payments may be reduced if you receive Social Security Disability. For short term disability, there are a variety of options including state Workman’s Comp insurance for which you are already paying.
Insurance is virtually always much cheaper if you buy it at a younger age. Further, compounding can build up the cash value if you buy earlier rather than later.
But knowing that and doing what you need to do at the right age requires planning.
- Viktor Frankl, Man’s Search for Meaning.