Preparing for the Future: A Risk-Management Checklist

Some aspects of financial planning are meant to get you where you want to go. Others are meant to protect you along the way. This post is about the latter, focusing on safeguarding your hard-earned progress by making sure you're doing all you can to control risk.

Here's a checklist of everything you need to protect your paycheck, your stuff, and your family's sanity. If you're on top of your financial and legal arrangements, then this exercise will be pretty easy. If not, it will help to highlight any gaps in your financial plan — before they become catastrophes.

Income Protection
Whether you're still working or not, you need to take steps to make sure unforeseen circumstances don't disrupt your, or your family's, ability to pay the bills:

    • Life insurance. If your family relies on your paycheck, or would have to hire someone to provide services you now provide (child care, for example), then you need life insurance.

 

    • Disability insurance. Most taxpayers have some disability insurance through Social Security. However, eligibility is strict, and the benefit won't replace your entire paycheck. If you and your family would be financially devastated if you were unable to work, look into disability insurance.

 

 

    • Income cushion. If you're retired, have five years' worth of living expenses that you expect to be covered by portfolio distributions in cash, CDs, or short-term bonds — just in case those distributions don't happen as planned.

 

    • A plan for growing your human capital. Your income depends on your ability to keep a job and merit ever-higher compensation. Think about ways to increase your skills, your value to your employer, and your worth in the marketplace.

 

Family Protection
Having the right, updated documents — legal and otherwise — will keep more wealth in your family and save a lot of heartache during times that are already very difficult:

    • Updated will. If you don't have a legally binding document that says who gets what, someone else will make those decisions. Make sure your will has been updated to reflect changes in family composition, recent acquisitions of property, and fluctuations in which relatives you like best.

 

    • Advanced medical directive. This legal document describes the medical care you wish to receive (or not) if you are no longer capable of making those decisions.

 

    • Durable power of attorney. This will allow someone you appoint to make financial or medical decisions on your behalf if you become incapacitated.

 

    • Trusts. Not everyone needs a trust. It will depend on your assets, the state in which you live, and how much you trust the people who will eventually inherit your money.

 

    • Updated beneficiary information. This isn't a separate document but rather something you need to do with all your insurance policies, accounts, and retirement benefits to ensure that the right people inherit your assets.

 

    • List of where you keep everything. If something were to happen to you, your family would need to be able to access trusted advisors (attorneys, accountants), legal documents, insurance policies, safe-deposit boxes, and so on.

 

Asset Protection
There are ways to protect what you own and ways to get reimbursed in case something happens to it. You want both:

    • Auto insurance. It's required by every state, and most of us should have more than is legally mandated. This will cost more, but you can cushion the blow by raising your deductible and dropping collision coverage on older cars.

 

    • Homeowners' or renters' insurance. This will cover damage or theft to your property, and in the case of homeowners, damage to the home itself.

 

    • Umbrella liability insurance. This is a relatively inexpensive way to increase the liability coverage offered by a homeowners' or renters' policy and an auto policy.

 

    • Safe-deposit box or fireproof safe. If you have possessions that merit more than the protection offered by a shoebox, put them someplace difficult for ne'er-do-wells (burglars, Mother Nature, children) to take or damage them.

 

    • Inventory of possessions. Your personal tragedy will be less tragic if you can prove to the insurance company what you owned.

 

Protect to taste
So how did you do? Were you able to check off most of those items? Do you have most of your risks managed, mitigated, and massaged? Not every person will need every one of these items. But consider each item you're missing, decide which of those don't apply to you, and then put the rest on your “to do” list.

I know, I know: This stuff is boring. But for most of these items, once you've done the up-front work, they thenceforth require just occasional maintenance. It's a small price to pay — much smaller than what you'd pay if something unfortunate happens and you didn't have sufficient protection.

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everyday tips
everyday tips
10 years ago

This is a fantastic post. I just wanted to reiterate the importance of a will. If you have kids, it is imperative that you create a will and specify a guardian for your children in the event something disastrous happens to both parents.

In addition for doing this checklist for yourself, I would also suggest going through this checklist for elderly family members you may be responsible for if they fall suddenly ill and cannot communicate.

lostAnnfound
lostAnnfound
10 years ago

I agree with #1. After our second (and last) child was born, almost 15 year now, we went to an attorney and had all but the trust done, plus designated a guardian for the kids. However, what we were told is that a guardian is not necessarily someone the kids would go to live with, but a person who would decide what happened to the kids. My sister is the guardian, so they would either live with her or, if she was unable to do it, she would decide where the kids would go.

Marie Swift
Marie Swift
10 years ago

Thanks for the great info, Robert. A resource that we are beginning to use to organize our family affairs online is a “digital safety deposit box” called Estate Logic. It’s a safe, secure and affordable way to keep electronic versions of our passports, drivers licenses, wills, trust docs, insurance policies, family history, letters of instruction, love letters, family photos, passwords to other sites, etc. in one safe secure place. Easy to use too. It was designed by one of the top financial planners in the country, Myra Salzer, founder of The Wealth Conservancy in Boulder, Colorado. Here’s how to check… Read more »

ts
ts
10 years ago

I have been putting off the will, living trust, etc. for years. Every new year saw me promise myself that I would do these unpleasant things but I never did. Daily living takes out so much attention it’s hard to make a concrete time to do the legal stuff. Also, how does one go about finding a lawyer whom one trusts? Is there an on going fee? Do you update the will every year and the lawyer bills you every year to keep your documents? Or is it just a one time fee? I know I probably can find these… Read more »

LB
LB
10 years ago

ts: In my state (Alabama) you can do your own advanced directive, printed out from the bar association’s site. I met our lawyer in a civic club I’m involved in, but you should just ask around. Our first will was straightforward, just assigning all our possessions and naming a guardian for our son. It cost $300, a one-time fee. Now we have a handicapped daughter and more assets, and so we have a trust. We are just completing this will but our lawyer still only charged us $300. You only update when you need, when you have a major change… Read more »

TODHD
TODHD
10 years ago

I definitely would sya that you have to protect yourself for your future more than ever

Janette
Janette
10 years ago

Five years in cash? Really? We are there right now because the stock market is a roller coaster- but I would hate to have five years in cash just sitting until I am 90 (that would be 40 years!) OK- Maybe if interest rates get better. How about corporate bonds? My grandfather did hundreds of laddered corporate bonds. We got a will because one place we were transferred to stated that if my husband died- 1/3 of his estate goes to his brother, 1/3 to his children and 1/3 to me. Of course if I died- he got it all:>)… Read more »

Kevin M
Kevin M
10 years ago

Very important things to think about, thanks for the list Robert.

Nicole
Nicole
10 years ago

We added disability on the first for the first time. Go us!

We’re really going to work on the family protection stuff in August. We’ve gone so far as to get the documents from an attorney before but never finished filling them out… this time we’re going to actually do it all.

CB
CB
10 years ago

I’m not sure I understand the Income Cushion. Is this like an Emergency Fund where you have access to the money if you need it apart from your Retirement Account(s) dispersements?
If I understand what is in the post, you would have 5 years worth of expenses in the bank before you retire just incase your retirement dispersements did not start when you thought they should or were substantially less than you originially planned for. Is that correct?
Thanks

Suzanne
Suzanne
10 years ago

@Janette, the author says once you’re retired to keep 5 years’ worth of expenses in “cash, CDs, or short-term bonds”. Not sure where you got that he said only cash.

I think that’s prudent – look at how many older people were hurt in the financial meltdown because they had way too much of their portfolios in the market. Anything invested beyond five years can handle some risk, though most retirees still shouldn’t have it all in the market.

Empty
Empty
10 years ago

Setting up our estate plan gave us enormous peace of mind, especially given that we have young kids. When our second was born we called our lawyer to update our wills within the week. It’s a huge hassle getting everything transferred to the living trust (still an ongoing process) but undoubtedly worth it. At least we only have to do it once. To answer a couple of the questions above: we found our lawyer through my company legal insurance plan, and he only charges us for creating and updating documents, not annually. We try to check in with him every… Read more »

chacha1
chacha1
10 years ago

This is great. On income protection and asset protection, DH and I are pretty good. On family protection, we suck. I think it’s all too easy for people who don’t have kids to let the wills, health directives, powers of attorney etc. slide. But we really shouldn’t. This is high on my list of unfinished business to attend to this year. Thanks for another much-needed kick in the pants. To ts: check out nolo.com. It has a lot of free information and resources for doing the basics of estate-planning yourself. No lawyer is needed for people with uncomplicated financial or… Read more »

Tom
Tom
10 years ago

I like the list and realize that I need to do some work on some of the items here. What I am missing however is protection of your digital assets. That’s not just having a digital safe deposit box as suggested by Marie Swift, which is a very good idea by the way, but rather a full backup of all your digital assets. That could be thousands of pictures, your administration, emails, work from the past and work in progress. Loosing this, for example because your house burns down together with both your PC and laptop (it happens), is a… Read more »

Sheila
Sheila
10 years ago

Thank you for another reminder that I need to make a list of our financial information and where to find it. Since I take care of everything financial, I need to make sure my husband knows where we keep our money and how to get to it. Pretty important stuff that I keep neglecting.

Rob
Rob
10 years ago

This is a good summary of all the things that should be taken care of in regards to managing your risk. I’m doing pretty well overall. The biggest gap is a list of financial information for my wife since I handle most all of the finances. Also, we do not have any umbrella insurance. I am not sure if it is worth us having at this point since we do not have many assets, but I may need to rethink that. I also need to look into having a will made or establishing a trust. We do not have kids… Read more »

Daniel P
Daniel P
10 years ago

Robert, Thanks for the great post. This is why I read this blog.

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