All Things Come to An End

September 27, 2013

It is with great sadness that I share this story about the end of production for the VW Bus.  I bet you didn’t know they were still being manufactured.  They are, until December 31st, in Brazil.  I will admit to being a huge fan of VWs.  I’ve owned several VW Bugs , a VW Thing, and my brother has owned a VW Bus or two along the way. 

Yes, even some of the things that are near and dear to our hearts eventually end. I’ve seen it with products (VW Bus, the Twinkie – although social media helped resurrect it, VCR players [my kids are asking “what’s that?”], etc.).  I’ve seen it with companies; my bank has had 6 names over the last 15 years and I still go to the same branch and see the same employees.  I’ve seen it with people, through death, divorce and other factors that cause people to enter and leave our lives.  The only thing that’s permanent is change.  And tattoos.

Over the course of your life, you will probably see your life change in significant ways a few times, if not more. Every one of those changes can have a major impact on your financial life. Sometimes the change will be for the better. Other times, not so much. The good news is that if you think about those possibilities now, you can prepare for them and not allow them to create a financial crisis later.  What changes can you reasonably expect to see and how can you deal with them?

Change:  Expect medical costs to rise significantly over the cost of your lifetime.

  • Your response:  If you have a high-deductible health plan, make sure that you have a health savings account in place and fund it to the maximum level possible. In 2014 that will be $3,300 for a single tax filer and $6,550 for married, with an additional $1,000 for ages 55 and up.  Then, pay for your out-of-pocket medical expenses out of cash flow, allowing the HSA dollars to grow tax free to fund retirement medical expenses in the future. It’s an awesome way to supplement your retirement savings and can be a major part of your retirement picture if you start this today.

Change:  Expect some type of job disruption during your career.  Nearly everyone I know has been impacted either personally or through a close family member or friend by the effects of downsizing, layoffs, mergers or some other factor beyond their control.

  • Your response:  Expect that this will be the “new normal” and that you, no matter how amazing you are at your job, will not be immune to this.  In order to prepare for this kind of change, you may have to look at your financial life through a lens you haven’t used before.  What if your employment stopped today?  How prepared would you be?  Some of the key things you can do to prepare for this require some discipline and forethought, and I’m hoping this could be your call to action.
  • Pay down your debt!  Eliminate it if possible.  Debt requires monthly debt service that you may not be able to meet if your employment ended today.  Getting rid of debt is a huge step forward.
  • Have a significant emergency fund in place.  It seems like most of America is living paycheck to paycheck right now, and if you can be one of the small percentage of people who can build a base of 6-9 months’ worth of expenses, you will be prepared for a disruption in employment.
  • Always work to build your skill set.  If your company downsizes and you are on the outside looking in, how awesome would it be to know that you have not only the skills you developed in your career, but an entirely different set of skills you developed on your own?  Make yourself marketable.  Look for ways to improve your personal educational foundation.  I am currently taking a few classes through www.coursera.org that are in no way related to my job, but are interests of mine and might make me more interesting to any potential future employers. (Not that I’m doing it for that, but it’s a nice side effect.)

Change: Expect that pensions are going away and Social Security benefits will not be as lucrative in the future as they are today.

  • Your response:  Save!  Save!  Save!  Use every tool available to you to build your asset base.  Live below your means.  Ideally, invest the IRS maximum into your 401k ($17,500 this year, plus $5,500 if age 50+).  Max out your health savings account.  If your income allows, contribute to a Roth IRA outside of your employer’s 401k plan.  Invest outside of your retirement accounts through taxable savings and investment accounts, paying particular attention to fees.  (A study indicates that low fees are a better indicator of future performance than past performance, and this study was done by Morningstar who makes it their business to study past performance.)

There are a whole lot of other changes that you can anticipate over the course of your lifetime and I may address more of them in future blogs.  The key point to remember is that if you can anticipate a change, you can effectively deal with it today (maybe through putting a plan/process in place that will take a few years to fully fund) so that a complete financial train wreck doesn’t happen in the future when one of the not-so-fun changes happens in your life.