This post was originally published on this site
The challenges people face when coming into sudden wealth are often spoken about. Receiving a cash windfall — from an inheritance or a lottery jackpot, for instance, can upend someone’s life in unexpected ways.
People who experience a sudden loss of wealth also have their lives disrupted — their future plans vanish in a flash.
Perhaps they are victims of an investment scam or their business tanks. Maybe a spouse hides gambling losses or other bad debt. Or homeowner insurance fails to adequately cover severe flood or earthquake damage.
Regardless of the cause, the effect is often paralyzing. As individuals and their families struggle to cope with the erosion of their assets, hopelessness can set in.
Financial advisers can’t work magic, but they can provide perspective and emotional support. As much as they help clients strategize to recover from a massive financial blow, their compassion and willingness to listen is equally important.
“The challenge as a financial planner is to provide support both on the emotional and financial side,” said Jay Zigmont, a certified financial planner at Childfree Wealth in Water Valley, Miss.
For example, a seemingly healthy, mid-career professional suffers a heart attack, stroke or other life-altering illness or injury. Depending on the policy provisions in medical and/or disability insurance, there can be gaps in coverage that create steep out-of-pocket expenses. “You can run through hundreds of thousands of dollars pretty quickly,” Zigmont said. “And there’s the loss in income if you can’t go back to work.”
As uncovered medical expenses mount up, advisers might propose options to help clients stay afloat. For example, they can suggest that the client enlist a medical bill negotiation service that specializes in lowering the balance due.
“You can apply for financial aid or charity care while in the hospital or once you’re out,” Zigmont said. He may coach a family on how to work with the facility’s billing office to agree to a payment plan so that the hospital doesn’t assign a collection agency to the account.
Advisers often urge clients in their 50s to buy long-term-care insurance to protect against the ever-increasing costs of home health aides and other ongoing expenses if they can no longer manage their daily care. Someone newly diagnosed with dementia or Parkinson’s, for example, can face a decade or more of personal care bills.
Prem G. Hira, founder of Investry in Scarsdale, N.Y., has counseled clients who’ve confronted what he calls “an accelerated drainage of resources.”
In one case, a family set up a trust with once-ample funds to cover the education of their grandchildren. But unforeseen medical and long-term-care expenses have resulted in a significant depletion of the trust.
“Now they’re in panic mode and feel defeated,” Hira said. He has doubled as a kind of financial therapist. “It’s important to be nonjudgmental,” he said. “I let them know they’re not alone, that a lot of families have had their long-term plans derailed in the last few years.”
He also shares strategic advice. He helped reset their financial plan and designate portfolio “buckets” to save for the grandkids’ tuition as the family replenishes their college fund.
“Some people aren’t heard in a family and should be,” Hira said. So part of his role is to dignify everyone’s ideas and insights — and forge stronger communication among family members.
For some individuals, a sudden loss of wealth comes with warning. Still, the impact is bracing. “When a client goes through a divorce and the judgment is settled, their net worth can be cut in half in one day,” said Nicole Gopoian Wirick, a certified financial planner at Prosperity Wealth Strategies in Birmingham, Mich. “It can be emotionally challenging.”
To help divorced clients cope, Wirick reframes the situation in positive terms. She starts by urging them to adopt a new attitude and start afresh. “It’s a chance to reset the narrative and change it into an opportunity to move to a new stage of life,” she said.
She asks two questions to guide the client on this new path:
1) What are your values?
2) How do we build a financial plan that aligns with your values so that you live a lifestyle that reflects your values?
This exercise tends to lift their spirits despite the loss of wealth. She drafts a written plan with steps they can take to advance toward their goals.
“Looking at the big picture can seem so impossible and daunting,” she said. “Getting small steps achieved can build their confidence.”
More: Investors who did this one thing survived the markets in 2022
