Career transition or job loss is always an important life event but it can have especially significant implications in mid-life. And when you find yourself facing mid-life job change during a global pandemic, there really are many important questions to consider.
- Do you want to stay in your current job role or pivot into a new career direction?
- Do you want to stop working altogether?
- Or, might you pursue a “working retirement” to stay professionally engaged but also have the flexibility to pursue interests outside of work?
Balance Financial Planning with Happiness During Your Mid-Life Career Change
I have long believed that happiness is far more important than money, especially for successful professionals who have arrived at this critical life juncture. In fact, I think it may often be better for people at this stage to make decisions that may not be financially “optimal” but which will produce greater happiness (as long as they have done a reasonable job of saving over the years).
Even though I am a financial advisor, I generally say “right on” to decisions that focus primarily on happiness! I actually think some people may benefit by thinking in these terms more often, especially if they have been dedicated long-term savers.
This tack may be even more useful in 2021 as we approach the time when we may eventually receive our “Get out of Covid-19 Jail for Free” cards! Hopefully, the days when we can really resume our normal lives and have more fun are not that far off in the future, although the timing remains uncertain.
Whether your version of fun entails returning to the “working world” or doing something entirely different is, of course, a matter of personal preference. While you evaluate those non-financial areas of your life, you should simultaneously begin (or continue) to review your personal finances and investments.
The Impact of Rising Health Care Costs on Your Financial Planning Strategy
For this week’s blog, I want to share information about an important financial planning topic: planning and paying for healthcare costs. Before discussing this significant component of a household budget, I want to review a strategic component of financial planning that goes hand-in-hand with planning for these expenses.
If you have read my blog before, you might remember that the cornerstone of my planning philosophy utilizes “cash flow” planning as the critical piece of understanding someone’s personal finances and evaluating potential strategies to develop specific financial goals.
I have written several blogs (you can read my most recent one here) on this topic including this one about how a rigorous analysis of your short-term and long-term cash flows provides a powerful framework for decision-making about investments, tax planning, Social Security claiming decisions, and more.
It goes without saying that understanding and projecting healthcare costs is a critical element of the cash flow of a particular household. The elevated cost of healthcare in today’s world means that this can be one of the highest categories of expenses for mid-life professionals who are in between jobs.
This is due to the likelihood that your former employer was likely paying for a large majority of the total medical insurance premium while you were working. Yes, it is true that you might have had some money deducted from your paycheck for medical coverage, but that amount was probably far less than the total insurance premium actually paid.
Don’t Let Health Care Inflation Leave Your Cash Flow in the Dust
When you leave the workforce temporarily or when you retire, you not only become fully responsible for those insurance premiums but also potentially for a greater degree of out-of-pocket costs.
These expenses often consume a sizeable percentage of many household’s total spending picture and can be several hundred dollars per month more than what you were previously responsible for when you were working.
Medical insurance premiums and out-of-pocket costs may present challenges when also viewed from a long-term perspective. For example, healthcare premiums and expenses are subject to a much higher inflation rate than the price increases seen in the general economy.
While the inflation rate struggled to consistently approach a very reasonable 2% over the past decade, healthcare inflation averaged 6% during that time frame. This may present a significant hurdle when you eventually retire.
As these costs continue to increase at a high rate, medical expenses begin to consume an even greater percentage of household spending for aging adults. There are many reasons why this is likely to occur, including the high inflation rate and the fact that you no longer have an employer subsidizing much of the cost. Healthcare will also cost you more for the simple reason that you may use more of these services as you age.
This is clearly not the good news part of the article, but we do not have to feel depressed or anxious about this reality!
Replace Anxiety with Awareness and Effective Financial Planning
The kind of healthcare planning I advocate does not have to feel like you are entering a haunted house. In fact, it offers great potential for building confidence in your ability to pay these costs!
That is because effective financial planning may allow you to project and understand how you will fund these expenses over many years. Developing a plan now for these costs can not only help you approach career change and/or retirement more confidently but also has the potential to identify cost-saving strategies as part of the planning process.
How should a mid-life professional go about this effort? That will be the subject of next week’s blog on this topic! I will be sharing the four key questions to ask so that you may understand the many variables impacting your specific costs and the levers that may be useful in developing a strategy to potentially reduce and/or pay for these expenses.
Until then, continue to focus on thinking about the non-financial and financial considerations for your next great chapter! If you have any questions about any financial topics or other comments you want to share, please contact my office.
