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Things Change!

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Summer is quickly coming to a close. My Facebook feed is full of pictures of my friends’ kids who are starting high school and heading off to college, and adorable images of the younger ones with their big, toothless grins announcing their start of kindergarten. All of that back-to-school activity has me thinking about fresh starts. And change.

My client Kathy and I met the other day to review her finances and see if early retirement was an option for her. She’s more than ready emotionally, and she’d “done the numbers” and figured out she could make it work. She handed me a list of her fixed and day-to-day expenses, but what was missing was a personal “escrow account” to cover longer term and unexpected expenses that are harder to manage when a monthly income is no longer coming in the door: saving for a new car three to five years down the road, minor and major home repairs, increases in medical costs, and more. And while we were able to figure out a good plan that will allow her to retire comfortably in 2016, change is never simple. There were a lot more pieces to the puzzle than she’d realized.

Kathy is no exception. It’s not uncommon for a client to come to me with no particular money issue in mind, but once we start talking, I realize there has in fact been a change that requires some rethinking when it comes to finances. If you’re a client, you know I always kick-off financial review meetings with two questions: “What is your biggest financial concern right now?” and “What is your biggest non-financial concern right now?” What I find is that it’s often the non-financial concerns that raise the biggest flags for change:

Larry and Lisa, both in their mid-70s with no kids, came in for a mid-year review. Larry’s biggest “non-financial” issue was that his younger brother was having some major health issues and was just forced to foreclose on his house. Adding his brother as a second beneficiary on Larry’s life insurance and IRA would provide some much-needed support for him in the future—he just hadn’t thought about the possibility.

Kerry’s mother is in her early 70s, and her general health is pretty good. She works out at the gym regularly and walks every day. But she’s fallen and ended up in a rehab facility with broken bones twice in the last two years. As an only child, Kerry didn’t realize the impact her mother’s health could have on her finances. I suggested Kerry talk to her mother now to make decisions that may impact them both sooner than expected.

At 59, Martin is planning to propose to his long-time partner, Marie, who is 60. The plans were all laid, and he was very excited about the pending event. What he didn’t realize was that re-marrying before age 60 would significantly impact his partner’s future Social Security widow benefits; enjoying a long engagement and delaying the actual wedding would add an extra $1500 to their monthly income in retirement. Even if they decide not to wait, they’re aware of the some of the financial “marriage penalties.”

Other changes are less subtle:

Ken and Katherine love their home, but now that they’re in their late 70s, the house and yard work is more than they can manage. They could afford to hire help, but they’re concerned about living independently for the long term. Driving is becoming an issue and they feel isolated, but the low cost of owning their home without a mortgage and with the benefit of Proposition 13 makes the choice complicated.

Lena moved from Northern California to take care of her elderly mother, but she was just diagnosed with a terminal illness herself. The fact that Lena’s mother will almost certainly outlive her requires a major shift in her financial and estate plans.

Judy just changed jobs, and her new employer gave her a sizable sign-on bonus. Plus, she has to figure out what to do with the 401(k) at her old employer. It would be easy to just leave it where it is, but she wants to know what makes the most sense for her long-term plans.

Subtle or not, change is a constant—for us and for others in our lives. It’s not just the school kids who are moving forward. No matter how young or old you may be, it’s a great time of year to look at all the changes in your life and, with a little help, identify which changes affect your finances and make the necessary adjustments to be sure you stay on track toward your long-term financial goals.

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