On the Road to Financial Health
Recovering from a serious illness can give you a new perspective–and a new set of financial challenges
MOST MID-LIFE CRISES ARE A BREEZE COMPARED with the one Cheryl Roberts has dealt with over the past year. In August 2005, at 43, she learned she had an aggressive form of breast cancer that had spread to one lymph node. “I had no idea what was going to happen,” says the San Luis Obispo, Calif. real estate appraiser. “It was terrifying.” The next nine months were a painful blur of surgery, chemotherapy and radiation–fortunately, with a happy ending. Roberts finished treatment in April, cancer-free. By June the avid bicyclist had completed a 50-mile ride and returned to work full time–with a new appreciation for just about everything. “I have the rest of my life ahead of me, and that feels awesome,” she says.
The next stage of recovery for Roberts: getting her finances back in shape. While she was undergoing treatment, she was able to work only 12 hours a week and her income, normally around $65,000, dropped by more than two-thirds. As a result, she dipped into savings to help cover her living expenses and to pay the $15,000 in medical bills she incurred for deductibles, co-payments, prescription drugs and other costs not covered by her health insurance. Roberts had routinely socked away about a quarter of her pay before her illness, so she wasn’t forced to take on debt. But the disease stalled progress toward her goals of buying a home and retiring early, and added a major element of uncertainty to her financial outlook. “I’m assuming I’ll live another 50 years,” she says. “But I know the cancer could return, and I don’t know how to plan for that.”
Roberts’ predicament is an all too common one. Many working people who survive serious health problems are forced to drain their savings. Or worse: Medical bills related to illness contribute to one in four bankruptcies in the U.S., according to a 2005 study by Harvard researchers. And even when the damage stops well short of insolvency, the costs associated with a serious health problem can disrupt cherished plans and require a new approach to setting and reaching financial goals.
That said, survivors are just that: survivors. Facing down a health problem calls for grace and determination–qualities that will help power you past serious financial hurdles. “Handling money issues is small potatoes after what I’ve been through,” says Roberts. And just as good medical advice can help with your physical recovery, the right financial advice will help restore your finances. Start with these steps.
Give Yourself a Financial Checkup When you’re battling a serious illness, you aren’t likely to have much time or energy for bill paying, let alone financial planning. Meanwhile, your finances are undergoing radical changes as you deplete your emergency fund (so that’s what that money was for), dip into savings and, possibly, pile up debt. As soon as you’re better, it’s critical to assess your new circumstances–to figure out how much you’re spending (especially if you need ongoing care that isn’t covered by insurance), how much you have left in savings and, perhaps most important, how much you owe.
Once you have a better sense of where you stand, perform financial triage–that is, identify your most threatening money problems and come up with a plan to deal with them. For many people recovering from a serious illness, debt is first on the list. If you’re hard-pressed to make payments on both your credit cards and your outstanding medical bills, focus on paying down the card balances first. Unlike card issuers, most hospitals, doctors and labs don’t charge interest or impose late fees. And their billing offices will often agree to work out a more manageable repayment schedule if you just give them a call.
Rethink Your Risk Tolerance A narrow escape can leave behind a lurking sense of fear. You’ll feel much better if you take steps to manage your risk. Replenish your emergency fund, perhaps building a larger stash if you face the chance of a relapse. Move some (but not all) of your long-term savings from stocks to bonds, at least temporarily, since the potential cost of further treatments effectively reduces your time horizon. “Consider where you’d be if the stock market dropped 35%,” says Milwaukee financial planner Paula Hogan. “Most people coming off a serious illness can’t afford that kind of loss.”
Shore Up Your Insurance Don’t let your medical coverage lapse for even a day. If you then try to buy an individual policy, a new carrier might be able to deny you coverage, citing a pre-existing condition, depending on your state’s laws. If you’re joining a new group plan and you’ve gone without insurance for 63 days or longer, the new carrier can refuse to pay bills related to an existing condition for up to 12 months. To prevent a break in coverage if you’re leaving a job, consider signing up for transitional coverage, known as COBRA, which is available at close to group rates, typically for 18 months. COBRA isn’t cheap. But the costs won’t be nearly as great as footing the full tab for a serious illness yourself.
And if you don’t have one, shop for a disability policy also. A good agent should be able to find a carrier who isn’t scared off by your medical past. But you’ll likely have to wait 12 months before being covered for disabilities related to your recent illness.
Look Before You Leap… Your new lease on life might get you itching to quit your job, travel the world, move to Tahiti or make other major changes that cost a lot of money. Take at least a few months to mull those ideas over. “A basic tenet of financial planning is to avoid making one big life change right after another,” says Hogan. “And a serious disease is truly a life-altering change.”
…But Leap if You Must That said, a brush with mortality sometimes has a side benefit: a deeper understanding of what’s truly important to you. Use your newfound clarity to redefine your goals, and set about reaching them. “I’m no longer interested in money for money’s sake,” says Roberts. “Money is just a tool for living life fully.”
For example, Roberts recently decided to buy her first home, a two-bedroom, $430,000 stucco. The $43,000 down payment wiped out a third of her savings, and the $2,600 monthly mortgage payment is a stretch. Roberts certainly won’t be retiring early now. But she says it’s worth it. “My illness put things in perspective,” she muses. “Why have I saved this money if not to use it for what’s most important to me?”
43% of adults with chronic illness struggle to pay their medical bills.
SOURCE: Commonwealth Fund.
MOST MID-LIFE CRISES ARE A BREEZE COMPARED with the one Cheryl Roberts has dealt with over the past year. In August 2005, at 43, she learned she had an aggressive form of breast cancer that had spread to one lymph node. “I had no idea what was going to happen,” says the San Luis Obispo, Calif. real estate appraiser. “It was terrifying.” The next nine months were a painful blur of surgery, chemotherapy and radiation–fortunately, with a happy ending. Roberts finished treatment in April, cancer-free. By June the avid bicyclist had completed a 50-mile ride and returned to work full time–with a new appreciation for just about everything. “I have the rest of my life ahead of me, and that feels awesome,” she says.
The next stage of recovery for Roberts: getting her finances back in shape. While she was undergoing treatment, she was able to work only 12 hours a week and her income, normally around $65,000, dropped by more than two-thirds. As a result, she dipped into savings to help cover her living expenses and to pay the $15,000 in medical bills she incurred for deductibles, co-payments, prescription drugs and other costs not covered by her health insurance. Roberts had routinely socked away about a quarter of her pay before her illness, so she wasn’t forced to take on debt. But the disease stalled progress toward her goals of buying a home and retiring early, and added a major element of uncertainty to her financial outlook. “I’m assuming I’ll live another 50 years,” she says. “But I know the cancer could return, and I don’t know how to plan for that.”
Roberts’ predicament is an all too common one. Many working people who survive serious health problems are forced to drain their savings. Or worse: Medical bills related to illness contribute to one in four bankruptcies in the U.S., according to a 2005 study by Harvard researchers. And even when the damage stops well short of insolvency, the costs associated with a serious health problem can disrupt cherished plans and require a new approach to setting and reaching financial goals.
That said, survivors are just that: survivors. Facing down a health problem calls for grace and determination–qualities that will help power you past serious financial hurdles. “Handling money issues is small potatoes after what I’ve been through,” says Roberts. And just as good medical advice can help with your physical recovery, the right financial advice will help restore your finances. Start with these steps.
Give Yourself a Financial Checkup When you’re battling a serious illness, you aren’t likely to have much time or energy for bill paying, let alone financial planning. Meanwhile, your finances are undergoing radical changes as you deplete your emergency fund (so that’s what that money was for), dip into savings and, possibly, pile up debt. As soon as you’re better, it’s critical to assess your new circumstances–to figure out how much you’re spending (especially if you need ongoing care that isn’t covered by insurance), how much you have left in savings and, perhaps most important, how much you owe.
Once you have a better sense of where you stand, perform financial triage–that is, identify your most threatening money problems and come up with a plan to deal with them. For many people recovering from a serious illness, debt is first on the list. If you’re hard-pressed to make payments on both your credit cards and your outstanding medical bills, focus on paying down the card balances first. Unlike card issuers, most hospitals, doctors and labs don’t charge interest or impose late fees. And their billing offices will often agree to work out a more manageable repayment schedule if you just give them a call.
Rethink Your Risk Tolerance A narrow escape can leave behind a lurking sense of fear. You’ll feel much better if you take steps to manage your risk. Replenish your emergency fund, perhaps building a larger stash if you face the chance of a relapse. Move some (but not all) of your long-term savings from stocks to bonds, at least temporarily, since the potential cost of further treatments effectively reduces your time horizon. “Consider where you’d be if the stock market dropped 35%,” says Milwaukee financial planner Paula Hogan. “Most people coming off a serious illness can’t afford that kind of loss.”
Shore Up Your Insurance Don’t let your medical coverage lapse for even a day. If you then try to buy an individual policy, a new carrier might be able to deny you coverage, citing a pre-existing condition, depending on your state’s laws. If you’re joining a new group plan and you’ve gone without insurance for 63 days or longer, the new carrier can refuse to pay bills related to an existing condition for up to 12 months. To prevent a break in coverage if you’re leaving a job, consider signing up for transitional coverage, known as COBRA, which is available at close to group rates, typically for 18 months. COBRA isn’t cheap. But the costs won’t be nearly as great as footing the full tab for a serious illness yourself.
And if you don’t have one, shop for a disability policy also. A good agent should be able to find a carrier who isn’t scared off by your medical past. But you’ll likely have to wait 12 months before being covered for disabilities related to your recent illness.
Look Before You Leap… Your new lease on life might get you itching to quit your job, travel the world, move to Tahiti or make other major changes that cost a lot of money. Take at least a few months to mull those ideas over. “A basic tenet of financial planning is to avoid making one big life change right after another,” says Hogan. “And a serious disease is truly a life-altering change.”
…But Leap if You Must That said, a brush with mortality sometimes has a side benefit: a deeper understanding of what’s truly important to you. Use your newfound clarity to redefine your goals, and set about reaching them. “I’m no longer interested in money for money’s sake,” says Roberts. “Money is just a tool for living life fully.”
For example, Roberts recently decided to buy her first home, a two-bedroom, $430,000 stucco. The $43,000 down payment wiped out a third of her savings, and the $2,600 monthly mortgage payment is a stretch. Roberts certainly won’t be retiring early now. But she says it’s worth it. “My illness put things in perspective,” she muses. “Why have I saved this money if not to use it for what’s most important to me?”
43% of adults with chronic illness struggle to pay their medical bills.
SOURCE: Commonwealth Fund.
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