Today’s typical American family is likely to face many financial challenges and opportunities throughout their lifetime. An individual person’s life goes though many ebbs and flows, yet some still believe life will follow a traditional linear path:
Step 1 – Graduate from college
Step 2 – Start career
Step 3 – Get married
Step 4 – Buy first home
Step 5 – Have children
Step 6 – Children graduate and move out
Step 7 – Children get married
Step 8 – Grandchildren
Step 9 – Retire
Step 10 – Enjoy spending time doing favorite hobbies with my favorite people.
The reality is that anything can happen at any time to throw someone off this linear path. Change is good though—that’s life. How you manage these changes will determine how fulfilling and satisfying your life is. Today we are going to touch on some common belief versus reality life situations and what you can do to plan for the unexpected.
Common Financial Challenge: Retirement
Belief – I can start saving for retirement when I am older.
Reality – I need to start saving for retirement as soon as I start working.
You hear it often: the sooner you start saving for retirement, the better off you’ll be in the long run. It also may not seem like it, but it’s easier to start saving at a younger age than when you’re older.
You may think, “No, that doesn’t make sense. I will have a larger paycheck when I’m older, so I’ll have more money to put away.”
That is the belief, but the reality is you will likely have many more financial responsibilities when you’re older as well. You’ll have mortgage payments, children to raise, college tuition to cover, one parent may decide to stay at home, a furnace may need to be replaced, etc.
In addition, you need to take advantage of compounding interest. The earlier, the better. While you’re working hard, your money will be working hard.
If you’re investing in a 401K, IRAs, stocks, bitcoin, etc. there will be natural ups and downs. The earlier you start saving, the better cushion you’ll have to protect your finances against some instability.
As you move closer to retirement, be sure to switch gears. Adjust your portfolios so you’re risking less of your investment.
Common Financial Challenge: Health
Belief – I’m young. I don’t have to worry about serious health problems any time soon.
Reality – Chronic medical conditions are common, even at younger ages.
If a medical condition is “chronic” this typically means it will last three months or longer. Common chronic conditions include arthritis, asthma, cancer, COPD, diabetes, and viral diseases such as hepatitis C and HIV/AIDS. This is a very small list of what can be deemed a chronic medical condition and any one of these conditions can be very serious and can cause individuals to take time off work or even quit their jobs.
Young people are not invincible to chronic illness. According to research from CNBC, 44% of millennials born between 1981 and 1988 have been diagnosed with at least once chronic health condition.
In this same report, it’s stated that the prevalence of these diseases not only affects millennials’ health and lifespan, but also their bank accounts. Studies show those with at least one chronic condition spend twice as much on out-of-pocket health-care expenses than those without any medical issues. Those with two concurrent chronic health issues spend five times as much. This fact stresses the importance of having an emergency fund and not waiting to purchase life insurance or disability insurance.
Common Financial Challenge: Disability
Belief – I won’t be disabled during my working years.
Reality – Long-term disability is common, even in healthy (low risk) office workers.
Here are some statistics to consider from the Council for Disability Awareness:
- Just over 1 in 4 of today’s 20-year-olds will become disabled before they retire.
- 3 out of 10 American adults can’t pay an unexpected $400 bill without having to carry a balance on their credit card or borrow money.
- Only 40% of U.S. households have enough in liquid savings to cover at least three months of their typical expenses.
- 77.8% of people in debt cited income loss as a contributor to their bankruptcy.
A sudden disability can happen to anyone. While there are higher risks of becoming disabled if you’re a professional bull rider, even low-risk office workers could develop cancer at a moment’s notice. Your income is your most valuable asset and disability insurance helps to protect it.
See what you’d pay for life insurance
Common Financial Challenge: Death
Belief – I won’t die at a young age.
Reality – Unexpected death occurs, even in young people who work in safe occupations.
Death isn’t a financial challenge for you, but it will be to those you leave behind.
If you have a family, anyone relying on you and your income, your death will not only affect them emotionally, but will negatively affect them financially as well if you don’t plan ahead. Life insurance is the number one way to protect your family from financial hardship should you die prematurely.
The cost of term life insurance is vastly overestimated by the general public. And many think it’s a complicated process, which it can be if you aren’t working with a good broker. Here at Quotacy we make getting life insurance easy and will walk you through the process every step of the way.
Common Financial Challenge: Children
Belief: I’m not sure I am going to have children.
Reality: More than half of Americans ages 18-40 have children. Another 40% do not currently, but hope to someday.
While families these days are having fewer children, the cost to raise children is definitely not decreasing. On average, it costs approximately $233,610 to raise a child from birth through age 17. If you’re also planning on contributing to their college education, the average cost of full-time undergraduate tuition ranges from $18,550 to $54,880.
When your child turns 18, that doesn’t mean you’re free and clear of them financially. Here are some interesting—and perhaps alarming?—facts about parents financially supporting adult children:
- Excluding full-time college students, 4 in 10 children ages 18-34 live with their family, mainly parents.
- 2 in 3 parents help pay their adult children’s expenses, including rent/mortgage, cell phone bills, student and car loans, and credit card debt.
- 1 in 20 children ages 15-24 are severely disabled and some will need help for the rest of their lives.
- 1 in 5 retirees provide significant financial support to children or grandchildren for college.
If you plan on having a family, starting an emergency fund for unexpected expenses and opening a 529 plan for college tuition saving are some good financial options. Buying life insurance to protect your family is essential.
With how costly it is to raise a child, dying unexpectedly without life insurance would create quite the negative financial domino effect. Raising a kid is expensive; life insurance doesn’t have to be. Get a term quote – you may be surprised at how affordable it can be.
Common Financial Challenge: Sandwich Generation
Belief: My parents planned for their financial future.
Reality: Many people end up supporting both their children and aging parents simultaneously.
The term “sandwich generation” refers to when the middle generation is caring for both their children and parents at the same time. As families start having children later in life, more of them also have aging parents who need their help.
Among adults who have a parent that is 65 years of age or older:
- 6 in 10 adults helped their parents with errands, housework, or home repairs within the last year.
- 3 in 10 helped their parents financially.
- 1 in 7 helped with personal care, such as bathing or getting dressed.
According to the Pew Research Center, more than half of adults in their 40s and 50s are providing this double financial support. Americans are living longer so the responsibility of adult children to care for their aging parents is lasting longer. Also, with the Great Recession and slow recovery, young adults are looking to their parents for support longer.
Being responsible for both your parents and children makes life insurance even more necessary. A term life insurance policy is quite affordable and if you died prematurely, the policy death benefit would help ensure your parents and children are still financially supported.
Not sure how much life insurance you need?
Common Financial Challenge: Divorce
Belief: I won’t get a divorce.
Reality: Many marriages end in divorce.
The divorce rate in America is quite high.
- The divorce rate for a first marriage is about 41%
- The divorce rate for a second marriage is 60%
- The divorce rate for a third marriage is 73%
Those are some pretty high numbers. Many people even tend to throw out the phrase “Half of marriages will end in divorce.” This isn’t exactly true, but this saying is popular because Baby Boomers (born between 1946 and 1964) started a divorcing phenomenon. It was common for this generation to marry young and have a family immediately. Once these children moved out, the couples began to assess their relationships and the divorce rate skyrocketed.
Divorce became a normal life event in the eyes of the Baby Boomer children, Generation X. However, this is also the generation that started a new trend: waiting to get married. The average age of marriage increased to an all-time high as Generation X decided to wait until their late 20s and early 30s to tie the knot. While the divorce rate is still high, the number is actually decreasing.
For Generation Y (a.k.a. Millennials) cohabiting with a partner and putting off marriage is a popular decision. Marriage is perceived by many as an economic liability. Their parents were divorcing and going through a recession… they saw how expensive marriage and divorce can be.
People today don’t go into marriages thinking they will get divorced, but it doesn’t hurt to plan for it. Back in the day, a married couple having separate banking accounts was unheard of. Today, just over 32% of all Americans bank separately from their partner.
According to the American Academy of Matrimonial Lawyers, 62% of lawyers found an increase in prenuptial agreements in recent years.
Prenups aren’t just for celebrities. It’s just another way to protect individual finances. Younger couples are waiting longer to get married and they often have significant assets they want to protect going into a marriage.
Another way to plan for an unforeseen future is with a trust. People can also protect their assets by keeping funds in trusts. Assets placed in a trust established before marriage are typically treated as separate property.
Trusts can be helpful in many aspects of your life. Talk with an attorney if you’re interested in learning more.
Having separate bank accounts, writing a prenuptial agreement, and owning trusts are a few ways you can plan ahead to make the event of a divorce easier, should it ever come to that (we hope it doesn’t.)
There is no way to 100% avoid any of these challenges. You can play the stocks and hope to strike rich, but there is no guarantee of this. You can exercise and eat healthily to increase your life expectancy, but that doesn’t mean you won’t get hit by a bus walking downtown.
The best thing to do to mitigate these financial risks is to plan for them and manage them if they happen. If you need extra help, work with a financial adviser who can help you make a plan.
About the writer
Natasha Cornelius, CLU
Senior Editor and Licensed Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.