Wealth Due to Inheritance

What is it?

Introduction

If you’re the beneficiary of a large inheritance, you may find yourself suddenly wealthy. Even if you expected the inheritance, you may be surprised by the size of the bequest or the diverse assets you’ve inherited. You’ll need to evaluate your new financial position, learn to manage your sizable assets, and consider the tax consequences of your inheritance, among other issues.

Issues that arise in connection with an inheritance

If you’ve recently received a bequest, consider the possibility that the will may be contested if your inheritance was large in comparison with that received by other beneficiaries. Or, you may decide to contest the will if you feel slighted. If you’re the spouse of the decedent, you may elect to take against the will. Taking against the will means that you’re exercising your right under probate law (governed by the statutes of your state) to take a share of your spouse’s estate, rather than what your spouse left you in the will, because this is more beneficial to you. Another possibility is that you may disclaim the bequest if you’re in a high income or estate tax bracket, or don’t need or want the bequest.

Some states allow no-contest clauses to be included in wills. If a will has such a clause and someone contests the will and loses, he or she gets nothing.

Evaluating your new financial position

Introduction

It’s important to determine how wealthy you are once you receive your inheritance. Before you spend or give away any money or assets, decide to move, or leave your job, you should do a cash flow analysis and determine your net worth as a first step toward planning your financial strategy. Your strategy will partly depend on whether you have immediate access to, and total control over, the assets, or if they’re being held in trust for you. In addition, you need to know what types of assets you’ve inherited (e.g., cash, property, or a portfolio of stocks).

Inheriting assets through a trust vs. inheriting assets outright

When you inherit money and assets through a trust, you’ll receive distributions according to the terms of the trust. This means that you won’t have total control over your inheritance as you would if you inherited the assets outright. With a trust, a trustee will be in charge of the trust. A trustee is the person who manages the trust for the benefit of the beneficiary or beneficiaries. The initial trustee was named by the individual who set up the trust. The trustee will likely be your parent or other family member, a close family friend or advisor, an attorney, or a bank representative. The trust document may spell out how the trust assets will be managed and how and when trust income and assets will be paid to you, and it will outline the duties of the trustee.

Know the terms of the trust

If you’re the beneficiary of a trust, the following should be done to ensure that your interests are protected:

  • Read the trust document carefully. You have the right to see the document, so if you can’t get a copy, hire an attorney to get it. Go over the document yourself or with the help of a legal or financial professional, making sure you understand the language of the trust and how its income and principal will be distributed to you. You may be the beneficiary of an irrevocable trust (can’t be changed), or you may be the beneficiary of a revocable trust (can be changed). In addition, determine whether certain practices are allowed or prohibited. For example, one common trust provision prohibits a beneficiary from borrowing against the trust. Another can prevent the beneficiary from paying creditors with assets of the trust. An additional provision usually prohibits creditors from attaching a beneficiary’s share of the trust.
  • Determine if the trust income is sufficient to meet your needs. Is the trust heavily invested in long-term growth stocks or nonrental real estate? Or, is the trust invested in things that provide income to you now, such as rental real estate or money market funds? From your agent (e.g., attorney, accountant) or trustee, get the income statements used to calculate how much income will be distributed to you.
  • Get to know your trust officers (if any) and find out how much the trustee fees are. Then, compare the fee with the average in your state or county (you might ask your local bank for this information). You may be able to negotiate the fee if it is too high, especially if the estate is large.

Working with a trustee

In some trusts, the trustee must distribute all of the income to the beneficiary every year. This type of trust may be simple to administer and relatively conflict free. You may want to work with the trustee or other professionals to ensure that the annual trust distribution is adequate to meet your needs.

In other trusts, the trustee may decide when to distribute trust income and how much to distribute. If this is the case, open communication with the trustee is important. You’ll need to set up a sound budget or financial plan and carefully prepare your request for a trust distribution if it is out of the ordinary. It’s in your best interests to find a way to work with the trustee. In most states, trustees are difficult to replace, and although they’re not supposed to lose money on investments, they’re not usually penalized if the trust performs poorly. If you decide to sue the trustee for mismanaging the trust, his or her legal fees may be paid for from the trust.

No matter how trust funds are distributed, pay close attention to how the trustee handles the trust investments. Have your lawyer, accountant, or financial advisor look over the trustee’s investment strategy. If your advisor determines that the trustee’s investment strategy doesn’t meet your needs or, worse, is unsound, discuss this strategy with the trustee or possibly ask the trustee to change his or her strategy.

Inheriting a lump sum of cash

When you inherit a large lump sum of cash, you’ll be responsible for managing the money yourself (or hiring professionals to do so). Even if you’re used to handling your own finances, becoming suddenly wealthy can turn even the most cautious individual into a spendthrift, at least in the short run. Carefully watch your spending. Although you may want to quit your job, move, gift assets to family members or to charity, or buy a car, a house, or luxury items, this may not be in your best interest. You must consider your future needs, as well, if you want your wealth to last. It’s a good idea to wait a few months or a year after inheriting money to formulate a financial plan. You’ll want to consider your current lifestyle, consider your future goals, formulate a financial strategy to meet those goals, and determine how taxes may reduce your estate.

Inheriting stock

You may inherit stock either through a trust or outright. The major question to consider is whether you should sell the stock. This depends on your overall investment strategy and what type of stock you’ve acquired. If you acquire stock in a company, for example, and you now own a controlling interest, you’ll need to look at how actively you want to be involved in the company or how much you know about the company. If you inherit stock and find that it doesn’t fit your portfolio, you may consider selling it, depending on the market conditions.

Inheriting real estate

If you inherit real estate, such as a house or land, you’ll probably have to decide whether to keep it or sell it. If you keep it, will you live there or rent it out? Do you hope that the house will appreciate in value, or are you keeping it for sentimental reasons? If you decide to sell or rent the house, you’ll need to consider the tax consequences, as well.

It’s possible that you may inherit real estate or other assets together with others, and sales may require the other owners’ assent or court action to sever the property.

Short-term and long-term needs and goals

Once you’ve done a cash flow analysis and determined what type of assets you’ve inherited, you need to evaluate your short-term and long-term needs and goals. For example, in the short term, you may want to pay off consumer debt such as high-interest loans or credit cards. Your long-term planning needs and goals may be more complex. You may want to fund your child’s college education, put more money into a retirement account, invest, plan to minimize taxes, or travel.

Use the following questions to begin evaluating your financial needs and goals, then seek advice on implementing your own financial strategy:

  • Do you have outstanding consumer debt that you would like to pay off?
  • Do you have children you need to put through college?
  • Do you need to bolster your retirement savings?
  • Do you want to buy a home?
  • Are there charities that are important to you and whom you wish to benefit?
  • Would you like to give money to your friends and family?
  • Do you need more income currently?
  • Do you need to find ways to minimize income and estate taxes?

Tax consequences of an inheritance

Income tax considerations

In general, you won’t directly owe income tax on assets you inherit. However, a large inheritance may mean that your income tax liability will eventually increase. Any income that is generated by those assets may be subject to income tax, and if the inherited assets produce a substantial amount of income, your tax bracket may increase. Once you increase your wealth, you should look at ways to minimize your overall tax liability, such as shifting income, giving money to individuals or charity, utilizing other income tax reduction strategies, and investing for growth rather than income. You may also need to re-evaluate your income tax withholding or begin paying estimated tax.

Transfer tax considerations

If you’re wealthy, you’ll need to consider not only your current income tax obligations but also the amount of potential transfer taxes that may be owed. You may need to consider ways to minimize these potential taxes. Four common ways to do so are to (1) set up a marital trust, (2) set up an irrevocable life insurance trust, (3) set up a charitable trust, or (4) make gifts to individuals and/or to charities.

Impact on investing

Inheriting an estate can completely change your investment strategy. You will need to figure out what to do with your new assets. In doing so, you’ll need to ask yourself several questions:

  • Is your cash flow OK? Do you have enough money to pay your bills and your taxes? If not, consider investments that can increase your cash flow.
  • Have you considered how the assets you’ve inherited may increase or decrease your taxes?
  • Do you have enough liquidity? If you need money in a hurry, do you have assets you could quickly sell? If not, you may want to consider having at least some short-term, rather than long-term, investments.
  • Are your investments growing enough to keep up with or beat inflation? Will you have enough money to meet your retirement needs and other long-term goals?
  • What is your tolerance for risk? All investments carry some risk, including the potential loss of principal, but some carry more than others. How well can you handle market ups and downs? Are you willing to accept a higher degree of risk in exchange for the opportunity to earn a higher rate of return?
  • How diversified are your investments? Because asset classes often perform differently from one another in a given market situation, spreading your assets across a variety of investments such as stocks, bonds, and cash alternatives, has the potential to help reduce your overall risk. Ideally, a decline in one type of asset will be at least partially offset by a gain in another, though diversification can’t guarantee a profit or eliminate the possibility of market loss.

Once you’ve considered these questions, you can formulate a new investment strategy. However, if you’ve just inherited money, remember that there’s no rush. If you want to let your head clear, put your funds in an accessible interest-bearing account such as a savings account, money market account, or a short-term certificate of deposit until you can make a wise decision with the help of advisors.

Impact on insurance

When you inherit wealth, you’ll need to re-evaluate your insurance coverage. Now, you may be able to self-insure against risk and potentially reduce your property/casualty, disability, and medical insurance coverage. (However, you might actually consider increasing your coverages to protect all that you’ve inherited.) You may want to keep your insurance policies in force, however, to protect yourself by sharing risk with the insurance company. In addition, your additional wealth results in your having more at risk in the event of a lawsuit, and you may want to purchase an umbrella liability policy that will protect you against actual loss, large judgments, and the cost of legal representation. If you purchase expensive items such as jewelry or artwork, you may need more property/casualty insurance to protect yourself in the event these items are stolen. You may also need to recalculate the amount of life insurance you need. You may need more life insurance to cover your estate tax liability, so your beneficiaries receive more of your estate after taxes.

Impact on estate planning

Re-evaluating your estate plan

When you increase your wealth, it’s probably time to re-evaluate your estate plan. Estate planning involves conserving your money and putting it to work so that it best fulfills your goals. It also means minimizing your exposure to potential taxes and creating financial security for your family and other intended beneficiaries.

Passing along your assets

If you have a will, it is the document that determines how your assets will be distributed after your death. You’ll want to make sure that your current will reflects your wishes. If your inheritance makes it necessary to significantly change your will, you should meet with your attorney. You may want to make a new will and destroy the old one instead of adding codicils. Some things you should consider are whom your estate will be distributed to, whether the beneficiary(ies) of your estate are capable of managing the inheritance on their own, and how you can best shield your estate from estate taxes. If you have minor children, you may want to protect them from asset mismanagement by nominating an appropriate guardian or setting up a trust for them.

Using trusts to ensure proper management of your estate and minimize taxes

If you feel that your beneficiaries will be unable to manage their inheritance, you may want to set up trusts for them. You can also use trusts for tax planning purposes. For example, setting up an irrevocable life insurance trust may minimize federal and state transfer taxes on the proceeds.

Impact on education planning

You may want to use part of your inheritance to pay off your student loans or to pay for the education of someone else (e.g., a child or grandchild). Before you do so, consider the following points:

  • Pay off outstanding consumer debt first if the interest rate on your consumer debt is higher than it is on your student loans (interest rates on student loans are often relatively low)
  • Paying part of the cost of someone else’s education may impact his or her ability to get financial aid
  • You can make gifts to pay for tuition expenses without having to pay federal transfer taxes if you pay the school directly

Giving all or part of your inheritance away

Giving money or property to individuals

Once you claim your inheritance, you may want to give gifts of cash or property to your children, friends, or other family members. Or, they may come to you asking for a loan or a cash gift. It’s a good idea to wait until you’ve come up with a financial plan before giving or lending money to anyone, even family members. If you decide to loan money, make sure that the loan agreement is in writing to protect your legal rights to seek repayment and to avoid hurt feelings down the road, even if this is uncomfortable. If you end up forgiving the debt, you may owe gift taxes on the transaction. Gift taxes may also affect you if you give someone a gift of money or property or a loan with a below-market interest rate. The general rule for federal gift tax purposes is that you can give a certain amount ($15,000 in 2019) each calendar year to an unlimited number of individuals without incurring any tax liability. If you’re married, you and your spouse can make a split gift, doubling the annual gift tax exclusion amount (to $30,000) per recipient per year without incurring tax liability, as long as all requirements are met. Giving gifts to individuals can also be a useful estate planning strategy.

The annual gift tax exclusion is indexed for inflation, so the amount may change in future years.

This is just a brief discussion of making gifts and gift taxes. There are many other things you will need to know, so be sure to consult an experienced estate planning attorney.

Giving money or property to charity

If you make a gift to charity during your lifetime, you may be able to deduct the amount of the charitable gift on your income tax return. Income and other limits apply. Consult a tax professional for help. For estate planning purposes, you may want to make a charitable gift that can minimize the amount of transfer taxes your estate may owe. There are many arrangements you can make to reach that goal. Be sure to consult an experienced estate planning attorney.

Sudden Wealth

What would you do with an extra $10,000? Maybe you’d pay off some debt, get rid of some college loans, or take a much-needed vacation. What if you suddenly had an extra million or 10 million or more? Now that you’ve come into a windfall, you have some issues to deal with. You’ll need to evaluate your new financial position and consider how your sudden wealth will affect your financial goals.

Evaluate your new financial position

Just how wealthy are you? You’ll want to figure that out before you make any major life decisions. Your first impulse may be to go out and buy things, but that may not be in your best interest. Even if you’re used to handling your own finances, now’s the time to watch your spending habits carefully. Sudden wealth can turn even the most cautious person into an impulse buyer. Of course, you’ll want your current wealth to last, so you’ll need to consider your future needs, not just your current desires.

Answering these questions may help you evaluate your short- and long-term needs and goals:

  • Do you have outstanding debt that you’d like to pay off?
  • Do you need more current income?
  • Do you plan to pay for your children’s education?
  • Do you need to bolster your retirement savings?
  • Are you planning to buy a first or second home?
  • Are you considering giving to loved ones or a favorite charity?
  • Are there ways to minimize any upcoming income and estate taxes?

The answers to these questions may help you begin to formulate a plan. Remember, though, there’s no rush. You can put your funds in an accessible interest-bearing account such as a savings account, money market account, or short-term certificate of deposit until you have time to plan and think things through.

Once you’ve taken care of these basics, set aside some money to treat yourself to something you wouldn’t have bought or done before, It’s OK to have fun with some of your new money!

Note: Experts are available to help you with all of your planning needs, and guide you through this new experience.

Impact on insurance

It’s sad to say, but being wealthy may make you more vulnerable to lawsuits. Although you may be able to pay for any damage (to yourself or others) that you cause, you may want to re-evaluate your current insurance policies and consider purchasing an umbrella liability policy. If you plan on buying expensive items such as jewelry or artwork, you may need more property/casualty insurance to cover these items in case of loss or theft. Finally, it may be the right time to re-examine your life insurance needs. More life insurance may be necessary to cover your estate tax bill so your beneficiaries receive more of your estate after taxes.

Impact on estate planning

Now that your wealth has increased, it’s time to re-evaluate your estate plan. Estate planning involves conserving your money and putting it to work so that it best fulfills your goals. It also means minimizing your taxes and creating financial security for your family.

Is your will up to date? A will is the document that determines how your worldly possessions will be distributed after your death. You’ll want to make sure that your current will accurately reflects your wishes. If your newfound wealth is significant, you should meet with your attorney as soon as possible. You may want to make a new will and destroy the old one instead of simply making changes by adding a codicil.

Carefully consider whether the beneficiaries of your estate are capable of managing the inheritance on their own. For instance, if you have minor children, you should consider setting up a trust to protect their interests and control the age at which they receive their funds.

It’s probably also a good idea to consult a tax attorney or financial professional to look into the amount of federal estate tax and state death taxes that your estate may have to pay upon your death; if necessary, discuss ways to minimize them.

Giving it all away — or maybe just some of it

Is gift giving part of your overall plan? You may want to give gifts of cash or property to your loved ones or to your favorite charities. It’s a good idea to wait until you’ve come up with a financial plan before giving or lending money to anyone, even family members. If you decide to give or lend any money, put everything in writing. This will protect your rights and avoid hurt feelings down the road. In particular, keep in mind that:

  • If you forgive a debt owed by a family member, you may owe gift tax on the transaction
  • You can make individual gifts of up to $16,000 (2022 limit) each calendar year without incurring any gift tax liability ($32,000 for 2022 if you are married, and you and your spouse can split the gift)
  • If you pay the school directly, you can give an unlimited amount to pay for someone’s education without having to pay gift tax (you can do the same with medical bills)
  • If you make a gift to charity during your lifetime, you may be able to deduct the amount of the gift on your income tax return, within certain limits, based on your adjusted gross income

Note: Because the tax implications are complex, you should consult a tax professional for more information before making sizable gifts.

Remarriage: Sharing Assets and Debts

When it comes to sharing assets and debts in remarriage, how “to have and to hold” can take some thought.

Type of Asset or Debt Factors to Consider
Debts incurred before remarriage

Keeping these debts separate protects the non-debtor spouse’s separate property from creditors

Debts incurred during the marriage

Sharing debt only for jointly acquired property protects both spouses’ separate property from creditors of the other spouse

Debt for property owned separately should be the liability of the owner spouse only

Property owned separately before remarriage

Separate assets may be used to provide for children of a previous relationship

Separate assets may be used to take advantage of both spouses’ estate tax applicable exclusion amounts

Separate ownership protects each spouse from losing his or her assets to the other spouse’s creditors

Home

Owning your home jointly as tenants by the entirety can help protect it from many potential creditors

Seek advice before placing a debtor spouse’s name on the title to the home–there are numerous considerations

Consider a Homestead Declaration for additional protection

Checking account

Having one joint checking account to pay household expenses is convenient

Each spouse can contribute equally or in proportion to earnings

Investments

Even if you keep your investments separate, make investment decisions together

Consider the effect on your combined portfolios when making investment decisions; keep your overall portfolio diversified

Insurance policies

Prevent duplicate coverage and make sure that you have adequate coverage for your combined needs

Check whether it’s less expensive to carry separate policies or combine both spouses under one policy

Check that the correct beneficiary has been named to life insurance policies

Planning for Marriage

What is it?

Planning for marriage encompasses more than just deciding whether to serve chicken at the reception and whether you should take a honeymoon cruise. If you are planning for marriage, you are faced with the enormous responsibility of combining your personal finances with your spouse’s, and reassessing the way you and your spouse structured personal finances as unmarried individuals.

Prenuptial agreements

A prenuptial agreement is a contract executed by prospective spouses that may define the rights, duties, and obligations of the parties during marriage and in the event of separation, annulment, divorce, or death. If both you and your prospective spouse are young and have comparable net worth, a prenuptial agreement may not be necessary. However, if either of you has substantial assets or children from a previous marriage or owns a business, you may want to discuss with an attorney the possibility of having a prenuptial agreement.

Money issues that concern married couples

Marriage is an important step in anyone’s life, bringing along with it many challenges. One of these is the management of your finances as a couple. Money issues that concern married couples include the proper budgeting, saving, and investing of money to ensure that both you and your spouse will have a successful financial future together.

Insurance issues that concern married couples

If you are married or planning to marry, you should determine how marriage impacts your insurance needs. Insurance issues that concern married couples include reevaluating your existing coverage to be sure that it is adequate, considering whether or not your marital status changes your need for insurance, updating beneficiary designations, and reviewing existing policies for possible reductions in premiums.

Integrating employee and retirement benefits when you marry

Marriage can alter the benefits you are eligible to receive from your employer. When you marry, both you and your spouse should determine how you can obtain maximum employee and retirement benefits at the lowest possible cost.

Property ownership issues that concern married couples

The way that you structure the ownership of your real or personal property as a married couple is an important step in the financial planning of your future together. The method of property ownership can affect future sales of that property, divorce proceedings, or the distributions of an estate upon the property owner’s death. Property ownership issues that concern married couples include whether or not to own property jointly, whether to retain sole ownership, and what the consequences are of living in a community property state.

Merging Your Money When You Marry

Getting married is exciting, but it brings many challenges. One such challenge that you and your spouse will have to face is how to merge your finances. Planning carefully and communicating clearly are important, because the financial decisions that you make now can have a lasting impact on your future.

Discuss your financial goals

The first step in mapping out your financial future together is to discuss your financial goals. Start by making a list of your short-term goals (e.g., paying off wedding debt, new car, vacation) and long-term goals (e.g., having children, your children’s college education, retirement). Then, determine which goals are most important to you. Once you’ve identified the goals that are a priority, you can focus your energy on achieving them.

Prepare a budget

Next, you should prepare a budget that lists all of your income and expenses over a certain time period (e.g., monthly, annually). You can designate one spouse to be in charge of managing the budget, or you can take turns keeping records and paying the bills. If both you and your spouse are going to be involved, make sure that you develop a record-keeping system that both of you understand. And remember to keep your records in a joint filing system so that both of you can easily locate important documents.

Begin by listing your sources of income (e.g., salaries and wages, interest, dividends). Then, list your expenses (it may be helpful to review several months of entries in your checkbook and credit card bills). Add them up and compare the two totals. Hopefully, you get a positive number, meaning that you spend less than you earn. If not, review your expenses and see where you can cut down on your spending.

Bank accounts–separate or joint?

At some point, you and your spouse will have to decide whether to combine your bank accounts or keep them separate. Maintaining a joint account does have advantages, such as easier record keeping and lower maintenance fees. However, it’s sometimes more difficult to keep track of how much money is in a joint account when two individuals have access to it. Of course, you could avoid this problem by making sure that you tell each other every time you write a check or withdraw funds from the account. Or, you could always decide to maintain separate accounts.

Credit cards

If you’re thinking about adding your name to your spouse’s credit card accounts, think again. When you and your spouse have joint credit, both of you will become responsible for 100 percent of the credit card debt. In addition, if one of you has poor credit, it will negatively impact the credit rating of the other.

If you or your spouse does not qualify for a card because of poor credit, and you are willing to give your spouse account privileges anyway, you can make your spouse an authorized user of your credit card. An authorized user is not a joint cardholder and is therefore not liable for any amounts charged to the account. Also, the account activity won’t show up on the authorized user’s credit record. But remember, you remain responsible for the account.

Insurance

If you and your spouse have separate health insurance coverage, you’ll want to do a cost/benefit analysis of each plan to see if you should continue to keep your health coverage separate. For example, if your spouse’s health plan has a higher deductible and/or co-payments or fewer benefits than those offered by your plan, he or she may want to join your health plan instead. You’ll also want to compare the rate for one family plan against the cost of two single plans.

It’s a good idea to examine your auto insurance coverage, too. If you and your spouse own separate cars, you may have different auto insurance carriers. Consider pooling your auto insurance policies with one company; many insurance companies will give you a discount if you insure more than one car with them. If one of you has a poor driving record, however, make sure that changing companies won’t mean paying a higher premium.

Employer-sponsored retirement plans

If both you and your spouse participate in an employer-sponsored retirement plan, you should be aware of each plan’s characteristics. Review each plan together carefully and determine which plan provides the best benefits. If you can afford it, you should each participate to the maximum in your own plan. If your current cash flow is limited, you can make one plan the focus of your retirement strategy. Here are some helpful tips:

  • If both plans match contributions, determine which plan offers the best match and take full advantage of it
  • Compare the vesting schedules for the employer’s matching contributions
  • Compare the investment options offered by each plan–the more options you have, the more likely you are to find an investment mix that suits your needs

Find out whether the plans offer loans–if you plan to use any of your contributions for certain expenses (e.g., your children’s college education, a down payment on a house), you may want to participate in the plan that has a loan pr

Five Questions about Long-Term Care

1. What is long-term care?

Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. There are three levels of long-term care:

  • Skilled care: Generally round-the-clock care that’s given by professional health care providers such as nurses, therapists, or aides under a doctor’s supervision.
  • Intermediate care: Also provided by professional health care providers but on a less frequent basis than skilled care.
  • Custodial care: Personal care that’s often given by family caregivers, nurses’ aides, or home health workers who provide assistance with what are called “activities of daily living” such as bathing, eating, and dressing.

Long-term care is not just provided in nursing homes–in fact, the most common type of long-term care is home-based care. Long-term care services may also be provided in a variety of other settings, such as assisted living facilities and adult day care centers.

2. Why is it important to plan for long-term care?

No one expects to need long-term care, but it’s important to plan for it nonetheless. Here are two important reasons why:

The odds of needing long-term care are high:

  • Approximately 52% of people will need long-term care at some point during their lifetimes after reaching age 65*
  • Approximately 8% of people between ages 40 and 50 will have a disability that may require long-term care services*

*U.S. Department of Health and Human Services, Last modified: November 14, 2017

 The cost of long-term care can be expensive:

For many, the cost of long-term care can be expensive, absorbing income and depleting savings. Some of the average costs in the United States for long-term care* include:

  • $7,756 per month, or $93,075 per year for a semi-private room in a nursing home
  • $8,821 per month, or $105,850 per year for a private room in a nursing home
  • $4,300 per month for an assisted living facility
  • $1,603 per month for services in an adult day health-care center

*Cost of Care Survey 2020, Genworth Financial, Inc., December 2, 2020

3. Doesn’t Medicare pay for long-term care?

Many people mistakenly believe that Medicare, the federal health insurance program for older Americans, will pay for long-term care. But Medicare provides only limited coverage for long-term care services such as skilled nursing care or physical therapy. And although Medicare provides some home health care benefits, it doesn’t cover custodial care, the type of care older individuals most often need.

Medicaid, which is often confused with Medicare, is the joint federal-state program that two-thirds of nursing home residents currently rely on to pay some of their long-term care expenses. But to qualify for Medicaid, you must have limited income and assets, and although Medicaid generally covers nursing home care, it provides only limited coverage for home health care in certain states.

4. Can’t I pay for care out of pocket?

The major advantage to using income, savings, investments, and assets (such as your home) to pay for long-term care is that you have the most control over where and how you receive care. But because the cost of long-term care is high, you may have trouble affording extended care if you need it.

5. Should I buy long-term care insurance?

Like other types of insurance, long-term care insurance protects you against a specific financial risk–in this case, the chance that long-term care will cost more than you can afford. In exchange for your premium payments, the insurance company promises to cover part of your future long-term care costs. Long-term care insurance can help you preserve your assets and guarantee that you’ll have access to a range of care options. However, it can be expensive, so before you purchase a policy, make sure you can afford the premiums both now and in the future.

The cost of a long-term care policy depends primarily on your age (in general, the younger you are when you purchase a policy, the lower your premium will be), but it also depends on the benefits you choose. If you decide to purchase long-term care insurance, here are some of the key features to consider:

  • Benefit amount: The daily benefit amount is the maximum your policy will pay for your care each day, and generally ranges from $50 to $350 or more.
  • Benefit period: The length of time your policy will pay benefits (e.g., 2 years, 4 years, lifetime).
  • Elimination period: The number of days you must pzay for your own care before the policy begins paying benefits (e.g., 20 days, 90 days).
  • Types of facilities included: Many policies cover care in a variety of settings including your own home, assisted living facilities, adult day care centers, and nursing homes.
  • Inflation protection: With inflation protection, your benefit will increase by a certain percentage each year. It’s an optional feature available at additional cost, but having it will enable your coverage to keep pace with rising prices.

Your insurance agent or a financial professional can help you compare long-term care insurance policies and answer any questions you may have.

Deductions for Long-Term Care Insurance Premiums: 2020 & 2021

Age 2020 Limit 2021 Limit
40 or under $430 $450
41-50 $810 $850
51-60 $1,630 $1,690
61-70 $4,350 $4,520
70+ $5,430 $5,640

Financial Survival After a Job Loss

You may have lost your job already, or it’s something you’re concerned about. Either way, the keys to surviving a job loss financially are to plan ahead, take stock of your income, and cut your expenses.

Plan ahead

If you haven’t been laid off, it’s a good idea to plan ahead for that possibility. It’s hard to know how long you’ll be out of work, so to be on the safe side, prepare for at least six months of unemployment. You might find a job much sooner, but you don’t want to be forced to take the first opportunity that comes along, especially if it isn’t suitable.

Come up with a financial plan for unemployment, and design your plan with some flexibility to allow for adjustments if your situation changes. Circumstances can vary based on how long you’re out of work, and whether unanticipated expenses arise while you’re unemployed.

Prepare a survival budget

A big part of your unemployment plan is a survival budget. Start with a list of all your income and expenses. You might already have a budget that you can use as a base, but your survival budget should be a bare-bones version of your regular budget. Include only expenses that are necessary. The goal of your survival budget is to have a good idea of what income you need to actually survive.

Your plan also should include an emergency fund that’s equal to at least six months of living expenses from which you can draw to supplement other sources of income. If you haven’t set up an emergency fund, you may still have time to do so. You’ll be amazed how fast you can deplete your regular savings if your unemployment lasts more than a couple of weeks.

If you lose your job, find some income

Start by checking with your former employer. Are you eligible for severance pay? Whether it’s available depends on your employer’s policy, but if you’re offered severance pay, you might have the option of taking it in a lump sum or as a continuation of salary for a fixed period of time. Taking severance pay in a lump sum gives you control over your money, but you may lose some employee benefits such as group health insurance. If you take your severance as a continuation of salary, you may be able to keep your benefits, but you’ll be dependant on your former employer’s ability to make payments to you.

But don’t stop there. Check with your local unemployment office to find out if you’re eligible for unemployment benefits. You can receive at least 26 weeks of benefits (more in some cases). Generally, to qualify for unemployment benefits you must have been laid off. You may even qualify if you’ve been fired, so long as it’s not for misconduct. You probably won’t qualify if you quit your job, however.

Reduce your expenses

If you’re unemployed, you may find that your income won’t support your current expenses. Aside from reducing your debt by selling big-ticket items like your car or house, there are other things you can do to minimize your living expenses.

One of your first considerations should be to identify and discontinue discretionary expenses. Such items as magazine subscriptions, health club memberships, extra phone services, credit cards you don’t use that have an annual fee, dining out regularly, and extra pay services on your cable television are examples of some of the expenses you can trim from your budget. You also may have to put off that planned vacation until you’re back on your “working” feet.

Talk with your creditors

Another way to cut your expenses is to try negotiating with your creditors to lower interest rates on your credit cards, defer a payment or two on your car loan, or reduce your monthly payments temporarily. You also may be able to lower your home mortgage monthly payments by refinancing to a lower rate (if you can qualify in spite of your job loss), or by negotiating a longer repayment period. You’ll have to admit that you’re facing some financial difficulty due to your job loss, but if your credit is good, now’s the time to make the calls–not when you fall behind in your payments.

Along those same lines, check with your mortgage company or credit card companies or look at your billing statements to find out if you have credit insurance. Credit insurance will make your bill payments when you’re unemployed. However, you may have to wait a while before receiving benefits.

While technically not an expense, you can also decrease your spending by reducing your contributions to retirement or education funds. However, the less you contribute now, the less you’ll have for retirement or college, so this option should be a last resort. But you might be able to make up for the reduction in contributions by increasing payments to those funds when you’re back on your feet financially.

Increase your income

You’ve cut your expenses and spending as much as possible, but you still don’t have enough income. Here are some ideas that might help you meet your expenses while unemployed.

Consider a part-time or temporary job. This will provide another source of supplementary income while you search for your next full-time job. And your part-time job could turn out to be your next full-time job–or at least it might lead to another opportunity with another potential employer. Also, your spouse or partner may be able to get a job if he or she is not already working, or pick up more hours at a present job.

Another income-generating option is borrowing from the cash value of your life insurance policies. But you’ll be limited as to how much you can borrow by the amount of cash available and other policy restrictions. And you’ll be charged interest on the borrowed funds, so if you don’t repay the loan, it can reduce your death benefit or even cause the insurance to lapse.

If you’re really strapped

Your home is another source of savings you may be able to tap into. If you have enough equity in your home, sometimes you can obtain a home equity line of credit even if you’ve lost your job. You’ll only pay interest on the portion you use. But you’ll still have to make a monthly payment, so make sure you’re able to afford the new loan payments before you put your house on the line.

If you’re still strapped for cash, consider withdrawing from your tax-deferred retirement accounts, such as your IRA or employer-sponsored retirement Any money you withdraw from these types of accounts likely will be taxed as ordinary income for the year in which you make the withdrawal. Also, you may have to pay a 10% penalty tax for early withdrawal if you’re under age 59½ unless an exception to the penalty applies.

If you’re considering taking funds from your IRA or retirement plan, you should consult a tax advisor regarding the specific tax treatment of your withdrawal, because not all of it will necessarily be taxable. For example, if part of the withdrawal from your traditional IRA or employer’s retirement plan represents nondeductible contributions, you may not be taxed on that portion of the withdrawal.

If all else fails

If money really starts getting tight, be prepared to take more drastic steps. You might consider moving from your home and renting it temporarily. Obviously you’d have to find cheaper alternative housing, but the rental income from your home may be enough to cover your rental expenses while your tenants pay for most of the home costs, such as utilities and even real estate taxes. However, any decision you make in this area should be made with careful consideration, and only after evaluating how much you can actually get out of the deal.

As a last resort, you may have to consider selling bigger items like your car or even your home. Since these larger possessions usually carry a debt, by selling them you’re not only generating some cash, but you’re decreasing your expenses by ridding yourself of the debt attached to the item sold.

All is not lost

A job loss is not the end of the world, even though it may feel that way. Mapping out your priorities and drafting a bare-bones budget can help you come up with your own financial strategy for job loss survival.

Divorce and Debt What is debt and how is it classified for divorce purposes?

Like property, debt is classified as marital or separate. In general, both spouses are responsible for any debts incurred during the marriage. It doesn’t matter which party actually spent the money. When the property is divided at the time of divorce, it’s often the case that the person who gets the asset also gets the responsibility for paying any indebtedness secured by that asset. Even if your spouse agrees to take over the debt, joint obligors on a loan will remain jointly responsible. That is, the creditors can seek payment from either of you.

There are basically four types of debt:

  • Secured debt
  • Unsecured debt
  • Tax debt
  • Divorce expense debt

Secured debt

Secured debt gives the lienholder or lender a right to repossess the property in the event of your default on the loan. Some examples of secured debt include mortgages on your real estate, car loans, and boat loans. If a loan stands in the joint names of you and your spouse, you’ll need to make it very clear in your separation agreement who will be responsible for making payments on the loan. Otherwise, if one spouse fails to make timely payments, the creditor can pursue the other spouse or (eventually) seek repossession.

Unsecured debt

Unsecured debt does not give the lender the right to repossess any specific property, although there are other remedies at law. Typical examples of unsecured debt include credit cards, personal bank loans or lines of credit, and loans from family and friends.

Tax debt

If you sign a joint return with your spouse, you’re each liable for the tax debt. For three years after the due date for filing your return, the IRS can perform a random audit of your joint tax return (although the period may be longer than three years in cases of fraud or failure to file). To avoid potential tax problems in the future, your divorce agreement should spell out what happens if any additional interest, penalties, or taxes are imposed for any prior tax year. Notwithstanding any such agreement, you should be aware of the so-called innocent spouse rules, which provide certain protections to a taxpayer whose spouse understated the tax due on a joint return. A number of rules and conditions apply.

Divorce expense debt

Divorce can be expensive, and sometimes a spouse will seek a court order to make the other party subsidize attorney’s fees for both sides. This might happen, for instance, when only one spouse works. Since the homemaker-spouse may have no income to pay for a divorce attorney, a judge might order the working spouse to pay.

Sometimes both parties work or have sufficient funds with which to retain attorneys. In these cases, you’ll need to spell out who pays for what. For instance, if both parties want the family business, the family home, or a pension to be appraised, you’ll have to apportion the costs. The same holds true if you both decide to transfer title to an asset after a divorce.

Debts can also be incurred during the separation period. If luxuries are purchased during this period, courts are likely to assign the debt solely to the party who ran up the debt. In general, debts incurred after the separation date and before the divorce is final are the responsibility of the spouse who incurred them. One exception is family necessities (i.e., food, clothing, shelter, and medical care). These necessities can be paid by the other spouse if the incurring-spouse can’t afford to pay.

What are the rules regarding joint credit card debt?

Either signer on a joint credit card can be held responsible for 100 percent of the debt, not just one-half of the debt.

Hal and Jane are seeking a divorce. During their marriage, Hal handled the finances and Jane stayed home with the children. During the discovery period of their divorce, Jane learned that Hal ran up over $30,000 on their joint credit cards to pay for his expensive suits, dinners for friends, recreational pursuits, and the like. Since they live in a community property state, all assets and debts will be divided down the middle. Thus, Jane will be responsible for paying $15,000 of the debt (from a judge’s perspective). However, if Hal fails to keep up with his monthly payments (or, if he decides not to pay any of his $15,000), the credit card companies can go after Jane for the full $30,000 because the divorce settlement is not binding on creditors.

During divorce proceedings, several issues can arise regarding credit cards, such as removing a spouse as an authorized signer, and understanding the obligations of joint credit card owners versus single card owners with two authorized signers.

Will my former spouse’s bankruptcy affect me?

Maybe. It will depend on the type of bankruptcy your former spouse chooses to file under (Chapter 7 or 13) and the type of debt owed. Debts such as alimony and/or child support payments (e.g., domestic support obligations) that are incurred as a result of a divorce decree/separation agreement, are protected from bankruptcy discharge (although a debtor’s bankruptcy can be the basis for the future reduction of these types of debts). On the other hand, debts owed as a result of a property settlement may be dischargeable under Chapter 13 bankruptcy.

It is important to note that the ways in which bankruptcy and divorce affect one another are complex. As a result, you may want to consult a bankruptcy or divorce attorney for more information.

How do you divide debt at divorce?

Basically, you have five options in allocating your marital debts:

  • You and your spouse can sell joint property to raise the cash to pay off your marital debts.
  • You can agree to pay most of the debts. In return, you can request a greater share of the marital property or a corresponding increase in alimony.
  • Your spouse can agree to pay the bulk of the debts. In exchange, your spouse may get a greater share of the marital property or increase in alimony.
  • You and your spouse divide the property and debt equally; that is, each of you gets one-half of the property and each of you agrees to pay one-half of the debt.
  • If you’re a homemaker with children, your spouse might be ordered to pay the bulk of the debt, pay alimony, and perhaps allow you to keep the house and a portion of other significant assets, such as your spouse’s pension.

Because of the threat of bankruptcy and/or damage to your credit report, it might be wise to sell joint assets to pay off debt, or to assume responsibility for the debts yourself.

How can I repair my credit after a divorce?

Credit problems generally stay on your record for seven years, while bankruptcies can remain for up to 10. There are some steps you can take to repair credit damaged during a divorce:

  1. Obtain a copy of your credit report and look for errors. Sometimes, your credit history may be confused with someone else who has a similar name.
  2. Meet with a consumer credit counseling representative. A representative can provide you with tools to negotiate with your creditors. He or she can also give you some useful suggestions for paying your bills.
  3. Open a secured credit arrangement with your bank. If you deposit a specific sum of cash with a bank (such as $500), the bank will sometimes provide you with a secured credit card. Making timely payments will help to repair your credit over time.

What questions (relative to debt) should you consider before entering into a divorce settlement agreement?

Before sitting down with an attorney, think about which debts were contracted prior to marriage (separate debt) and which debts were contracted during the marriage (marital debt). With respect to marital debt, consider the following questions:

  • If I wish to keep a particular marital asset, will I have sufficient income to keep up with the loan payments?
  • Should I liquidate other assets to retire the debt completely (or partially)?
  • If my spouse proposes a property settlement agreement, is there any likelihood that he or she would subsequently declare bankruptcy?
  • Can I collateralize property settlement notes from my spouse so that bankruptcy will not eliminate his or her obligation to me?
  • If, pursuant to our divorce agreement, my ex-spouse assumed responsibility for all credit card debt, what are my legal remedies if he defaults? How can the divorce agreement be enforced?

Dealing with Periods of Crisis What is it?

By definition, a crisis is a turning point, a time when you have to make crucial decisions (often suddenly) that will affect your future. Although smart planning is the key to effectively dealing with periods of crisis, you may find yourself suddenly dealing with an unexpected event that you didn’t prepare for, and you wonder what to do next. Whether you’re planning ahead or dealing with a crisis now, take control. There’s no escaping the fact that a crisis is a life-changing event, but how you handle a crisis will, in part, determine whether your life changes for the better or for the worse.

Planning for a future crisis

Identify and manage risk

What future crises are you likely to face? While you hope that the answer to this question is none, that’s an overly optimistic thought. It’s almost inevitable that you will face one crisis or more during your lifetime. While you can’t have a plan to deal with all possible risks, you can plan for events that seem likely and for some events that may seem unlikely. You should, for instance, plan for events such as death, illness, and job loss. You may not, however, have to plan for crisis risks that are unlikely to affect you, such as divorce (if you are single or happily married), or natural disaster (if you live in a non-disaster prone area). Knowing that you have some plan will help you deal with a crisis if you ever do confront one.

Jane and Hal built a beach house in Malibu. Their home was swept away in a mudslide, and they spent months replacing their personal possessions, as well as getting duplicates of their birth certificates, insurance policies, and other personal and financial records. Five years later after they had rebuilt their house, a fire swept through town, and their house was destroyed. Fortunately, this time they were ready. They had kept their important records and financial information in a safety deposit box, and had sent boxes of photos to Jane’s mother for safekeeping.

Plan for contingencies

Any plan you make for dealing with a future crisis should be flexible. Part of the stress you feel when confronting a crisis is because crises are unexpected and unpredictable. You won’t know ahead of time how you’ll react and exactly what you’ll have to confront. One good approach is to plan for a worst-case scenario. For instance, if you plan for a period of unemployment that lasts for two months, what will you do if it stretches for six months? If you plan around a six-month period of unemployment, however, you’ll know what to do if it only lasts for two months.

Organize your records

A key component of planning for a crisis is organizing your records and personal papers. This is particularly true if you become sick, incapacitated or die and your loved ones have to assume responsibility for your finances. You will also be able to readily access vital information instead of wasting time and energy trying to find it. At the very least, you’ll want to set up a filing system and give a list of your important documents and advisors to a trusted friend for safekeeping.

Plan your finances

Unless you have significant liquid assets, planning for a crisis means, in large part, planning your finances. Many financial professionals advise their clients to keep an emergency fund equal to at least three months worth of expenses, just in case your income flow stops or your expenses increase. This emergency fund can make a big difference because many things can change in three months. If you don’t have the emergency fund, however, you may have to make hasty decisions regarding your future, such as taking a new job you don’t really want, selling prized personal possessions, or dipping into your college or retirement fund. You should also work up a bare-bones budget that reflects only your basic living expenses. Cut out all luxuries, and determine the least amount of income you need to survive.

Quantify your plan

When you plan for a future crisis, don’t be too general. Instead, be as specific as possible and write down your options. This way, you’ll be less tempted to avoid decisions by thinking you’ll deal with that when the time comes, and you’ll have something concrete to refer to if you must deal with a crisis situation. You’ll feel calmer, too, when you’re facing the crisis. People who live in areas prone to natural disasters often keep emergency kits in their cars or homes in case they need to evacuate in a hurry–a good example of this principle.

Dealing with an immediate crisis

Act, don’t react

Often when facing an immediate crisis, you want to do something, just about anything to solve the crisis, or you want to run away. While both responses are natural, neither is helpful. While you definitely need to do something in a crisis situation besides hide your head in the sand, you shouldn’t do just anything. In fact, it may even be preferable to take no action for a few days to let your emotions cool a bit. Then, act, but don’t react. To the extent possible, collect information and advice and formulate a plan. You may have only hours or days to do this, but some plan is better than none. If you feel that you can’t keep your emotions separate from your actions, ask a friend, relative, or professional to help you sort through your options.

Make a list of things that you need to do

When you have to plan in a hurry, the easiest way is to make a simple list of things you have to do. List as many items as possible. Then, as you do them, you can check them off. This is important because when you’re under stress, you may forget to do important tasks. In addition, a list will help you remember to focus on action, not reaction.

Find help

No one should have to weather a crisis alone. Even if you’re alone in the world or if you don’t want to burden your loved ones with details, there are community resources and individuals (paid and unpaid) who can give you general and specific advice.

Dealing with illness or disability

Harness your emotions

If you find out that you, or someone close to you is sick, hurt, or dying, you’ll probably feel numb, scared, angry, sad, anxious, or even panicked. It’s likely that your initial feelings will change, but you may never accept your situation. You don’t necessarily have to accept illness and its consequences to deal with it, however, and you can control how you react to it. In fact, some people need to feel in control of everything when they become sick because they are unable to control their disease. Remember that this need for control is common, and it can be positive if you use your energy to make unemotional decisions that will affect you and your loved ones.

Find support

When you’re sick or hurt or caring for someone else who is, it’s vital to have a support network. Hopefully, you have close friends and relatives that will help you. But many people don’t come forward to help and even well-intentioned friends and relatives may not give you as much help as you need. Fortunately, there are many community resources available to help you.

Find a way to pay your bills

Paying your bills when you’re sick can be hard because you can’t work at all or perhaps can work only part-time. If you own your own disability insurance policy, check your coverage and contact your insurance company for claims information. Your employer may have group disability insurance that you aren’t aware of that will help you. If you were hurt or became sick from job-related causes, you may be able to collect benefits from workers’ compensation. If your disability is expected to last a year or more (or even result in your death), you may be eligible for Social Security disability benefits. But if you have no hope of receiving disability insurance benefits, you’ll have to cut your expenses and rely on your savings or spousal income. If you have limited income, you may be able to qualify for Supplemental Security Income (SSI) benefits or other government programs.

Determine how the illness will affect your job

If you work and become sick or get hurt, or if you have to care for someone else who is ill, you’re probably worried about how you’re going to keep your job. First, talk to your employer about what benefits you are entitled to in the event you are disabled. Your employer may be used to dealing with situations like yours and may have programs in place that you don’t know about. Next, be aware that if you work for a company that employs 50 or more people, you may be entitled to take up to 12 weeks unpaid leave under the Family and Medical Leave Act of 1993 if you need time off to recuperate or to care for someone else.

When her mother was seriously injured in a car crash, Marcy wanted to fly to Dallas to take care of her. Because of the Family and Medical Leave Act of 1993, Marcy was able to take eight weeks of unpaid leave from her job, and she was restored to her former position at the same level of pay and benefits when she returned to work.

Plan for the future

Planning for the future is vital. When you’re sick, you suddenly realize the limits of your own mortality and your priorities may become clearer. It’s a good idea at this point to set new priorities and goals for the future. If you’re terminally ill, this step is critical. You may also need to quickly revise your financial and estate plans. Even if you expect to recover from your illness, you’ll benefit from reviewing your insurance coverage and your financial plans and by applying lessons learned from your illness to planning for the future.

Dealing with unemployment

Deal with your emotions

When you lose your job (unless you’ve quit), you’re usually angry and discouraged. It’s natural if your self-esteem is ebbing, and you may be tempted to run away from your problem instead of facing it. You may be tempted to make a drastic career change, start your own business, or continue your education. Although doing one of these things may be right for you, be careful. You may be reacting emotionally rather than logically. Following your dream can be wonderful, but it can also be a way to escape from the crisis that confronts you. Check out your options carefully, and don’t forget that finding a new job is one of them.

When Lou was 53, he was laid off from the automobile manufacturing plant where he had worked for 18 years. A month later while still depressed, Lou decided to take his life savings and invest in his dream. Six months later he opened Lou’s Lakeside Restaurant. Unfortunately, Lou’s restaurant failed because he hadn’t taken the time he needed to plan his business or to learn about running a restaurant. He lost all his money.

Find support

If you’re married, you may be tempted to rely upon your spouse for support, and he or she is probably happy to give it to you. Remember, though, the most loving spouse in the world can’t solve all your problems and is probably more anxious over your job loss than you realize. Share your burden with your friends, a support group, a career counselor, or a financial professional.

Find a way to pay your bills

If you’ve lost your job through a layoff or because you were fired, immediately contact your state’s unemployment office. You may be able to apply by phone or by mail, and you may receive benefits quickly once your application is verified. You’ll also need to find ways to cut expenses or increase your income. If you know that you are losing your job a few weeks or months before it happens, you’ll have time to restructure your debt, take a part-time job to fund your future unemployment, or borrow against your savings, home, or investments. If your job loss is sudden, however, you may need to rely upon your savings and find ways to reduce your payments on bills.

Find a new job

One of the first things on your mind when you lose your job is finding another one. You may be surprised at how difficult this is, particularly if you’ve worked at the same job for a long time. If you’ve dealt with unemployment before, you probably know the drill: update your resume, check the want ads, begin to network, etc. Even if you’re an experienced job seeker, there are resources that can help you.

Dealing with the death of a family member

When your spouse or a family member has died, you may need to plan the funeral, organize your finances, and claim life insurance benefits. You may need to serve as executor of your loved one’s estate, and you may need to be familiar with estate settlement procedures.

Coping with Unemployment What is coping with unemployment?

Coping with unemployment means breaking away from the past and facing your future. It means dealing with the emotional, financial, and professional challenges unemployment can bring. Although this process can be painful, facing unemployment with a plan will help make coping with it easier.

Dealing with your emotions

When you lose your job

Losing your job is an emotional experience–whether you are laid off or fired, whether you quit or retire. Your feelings of self-worth are tied more closely to your job than you realize. Although you’re certainly entitled to relax awhile after your job ends, it’s easy to let a few days of sleeping late, watching television, and playing golf turn into a few months of inactivity. Be careful not to use your need to relax as an excuse to avoid facing your future. The more time that passes, the more likely you’ll feel anxious and depressed about your future. Here are three tips on what you can do to keep yourself moving:

  • Pretend that you’re still working. You’ve probably heard the adage that finding a job is a full-time job. Well, it’s usually true. So why not pretend that you’re still working? You don’t have to get dressed up for this job, but at least get out of bed at the same time and get going. Stop for lunch and then work again until late afternoon. Keep moving, and you’ll accomplish your goal of finding a new job with a lot less anxiety.
  • Set daily and weekly goals.
  • Get a calendar and write down what you want to accomplish each day for one week. Be specific and reasonable. Don’t write “call future employers ” Instead, write “call the human resource departments at five publishing companies.” Then, write down what your weekly goal will be. You might write “compile a list of five potential employers and send resumes to them.” Setting goals will help you feel in control of your fate and will ultimately help you get a job.
  • Reward yourself. Looking for a job is tough, so after a long, hard day of job hunting, reward yourself. For instance, promise yourself in the morning that if you accomplish everything on your list by three o’clock, you can go to the matinee of the movie you’ve been wanting to see.

Planning a financial strategy

When you lose your job

When you lose your job, you may be able to rely on savings or, in some cases, unemployment compensation to replace some of your lost income. However, if you don’t have much money saved or are worried about how to survive financially, you should come up with a financial plan for unemployment. You should plan a financial strategy that will keep you afloat for six months, if necessary. Hopefully, you won’t be unemployed that long but if you are, you’ll be prepared. Make a list of ways you can save money and cut expenses and prepare a bare-bones budget that shows the least amount of money you can live on during your period of unemployment. Then, prepare a six-month financial plan that details to the extent possible how you plan to survive financially while you’re unemployed.

Planning for life after your current job ends

Find out what unemployment compensation you may receive

If you are being terminated for any reason, find out if you will receive severance pay and what unemployment benefits you may receive. You’re likely to receive severance pay if you are laid off, but severance pay is usually based on the number of years you’ve been with the company. If you are laid off or fired, you may be eligible for unemployment compensation from your state. Your employer can give you the details. You should also find out when you will receive your final paycheck and if you are eligible for compensation for vacation or sick days you accumulated but never took.

When Alice was laid off from her job as executive housekeeper, her employer gave her a final paycheck consisting of her last two weeks of salary and ten days’ worth of pay for the vacation time she had accumulated but never took. She also received severance pay equal to one month’s salary. In addition, her employer gave her the address and phone number of the nearest unemployment office, as well as information on how to apply for unemployment benefits in her state.

Find out about continuing your medical benefits through COBRA

If you work for a company with more than 20 employees, your employer must notify both you and your spouse (if any) via first class mail that you have the right to continue your group health insurance coverage after your employment has been terminated (unless it ended because of gross misconduct). Under COBRA, you can continue your benefits up to 18 months, and your spouse and dependent children may be covered up to 36 months. However, you’ll probably have to pay the full premium cost plus a small administrative fee–your employer won’t contribute anything. If you work for a company that has fewer than 20 employees, you’ll have to check your state’s laws to see if you can continue coverage. Some states have passed legislation that gives employees of small employers the right to continue their health care coverage for a certain period of time.

Determine how you will handle your retirement account or pension plan funds

If you will receive a lump-sum pension plan or savings plan distribution, decide where you want that money to go. It’s easiest if you authorize your employer to transfer funds directly from your retirement plan to another retirement plan you have set up elsewhere. Although you may be tempted to withdraw money from your retirement account to provide much-needed income, do so only if this is your only option.

Find out whether your employer-sponsored group disability or life insurance policy is convertible or portable

When you lose your job, you may also lose your disability or life insurance coverage. Although disability insurance is rarely portable or convertible (you can’t take it with you or convert it to an individual policy), your group life insurance policy may be.

Ask how the company handles inquiries about your employment

Afraid of being sued by vengeful ex-employees, many companies today will give only limited information about your employment. A few companies may be willing to give some information about the quality of your work, but, in general, companies may answer only factual questions such as your dates of employment. If you were fired, you may be happy if your company has a strict employment inquiry policy. However, if you quit or were laid off, you may wish that your employer would give out more positive information as well.

Line up references

If possible, you should line up one or more people who are willing to give you a good professional reference. Those you choose should be personally familiar with your work and hold positions in the company higher than your own. However, before you list any former supervisors as references, check with them; some companies forbid department managers or supervisors to give out information about former employees. Many individuals, however, will give out information anyway, but check with them first. You don’t want to be surprised later if someone you list as a reference refuses to talk to your potential employer.

Finding a new job

Setting realistic expectations

It may take you a lot longer to find a job than you think. You may have to update your resume, research job openings, and interview more than once with a potential employer. You should expect the job hunt to last at least six weeks and be prepared for it to last at least six months, especially in a tight job market (one rule of thumb is to expect it to last one month for every $10,000 of compensation). You may also have to decide whether you’re willing to move to a different area if you can’t find a job locally.

Setting up a support network

Networking can mean either finding others who can support you emotionally when you’re unemployed or finding individuals and printed materials that can help you find a new job. You can find emotional support through friends, relatives, job-hunters’ support groups, or Internet sites. In addition, many resources are available to help you find a new job. You can find numerous books and newspapers at your local bookstore or library that will help you determine your career goals, prepare a resume, and research companies in your area. You can talk to professional job counselors, headhunters, temporary agencies, or image counselors (you may have to pay them a fee, in some cases) who can help you find job openings or line up interviews. You can even find jobs through the Internet or through your friends and family.

Starting your own business

Many people who have lost their jobs to company downsizing decide to start their own businesses and, after years of working for someone else, really enjoy being in charge of their own company. If you are tempted to start your own business, be aware that most new businesses fail quickly, often due to the lack of cash flow and thorough planning.