Providing financial and physical shelter

Managing risk

Covering your bases, for whatever bad turns your life might take

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It would not be hard to identify a dozen or more risks that are either directly financial, or are not primarily financial but have big financial implications. The resources on this page deal with that second category (the directly financial risks are dealt with in the Managing Money section).

The “life risks,” as we might call them, are related to our physical well-being. If we die too soon, we could deprive those who are dependent on us. If we live too long, we could run out of money ourselves. If we become ill or infirm, or someone dependent on us does, we might rack up medical and care expenses that cripple the family finances.

Dealing with risk generally means taking reasonable steps to prevent bad events, making sure we have provided (to the extent we prudently can) in case the bad event happens anyway, and beyond that, hoping for the best.

We are lucky to live in a society where charitable and governmental agencies can usually supply the necessities of life, if we are extremely unlucky and become truly destitute. And most of us also have family or friends who would help out, at least temporarily until we could rally those societal resources around us. So we don’t have to prepare for the truly worst case scenarios, unless we choose to. Still, most of us prefer not to rely on those final societal safety nets if we can avoid it. Nor do we want to create massive burdens for our loved ones. So we best serve ourselves and others if we take reasonable steps to make sure that we are covered for at least the most probable adverse events.

Managing Risk relates to other areas of Security:

Managing Risk relates to other areas besides Security:

Managing Risk Sub-Topics and Resources

The financial consequences of dying before you expect to are not always severe, but they can be. Fortunately, if someone you care about is at significant financial risk if you die first, or if you yourself are at risk if your spouse or other living companion dies, you probably can buy life insurance to help cover that risk – unless the party needing the insurance is disqualified by already being severely ill. Conversely, you may have more insurance than you need, in which case it may or may not be a good idea to get rid of it (many forms of life insurance have cash values that can grow free of federal income taxes).

The non-financial consequences of a death in the family can be even more devastating, of course. These, along with information about legal and funeral arrangements, are covered in other pages, listed under “See also,” below.

Most of us wish for a long life, but it can put a strain on our financial resources. If we choose to (or just need to) gradually spend some of our savings every year, then as our assets decline, so does our interest or investment income. And as our income declines, we have to take more out of savings. So eventually the decline in our assets accelerates, and if we live long enough, it’s all gone.

But if we don’t spend any of our savings, and instead just live off the income, we have less to spend every year, and our standard of living has to be lower. And it can drop still further, over time, because our income is more or less fixed, while inflation continues to push our expenses up. This effect lessens eventually, since the elderly are not as able or as interested in going out and spending money – though some expenses, like housing (rent, property taxes, utilities) and medical expenses tend to keep going up. Overall, it can be hard to live on a completely static income.

So “living too long” can definitely strain your finances, unless you are affluent enough so that you just don’t have to worry about it. This section helps you further understand this risk and ways to cope with it.

Unlike many countries, the U.S. does not provide free medical care for most people. This matters more as we age, since we are more prone to both chronic and acute medical problems, and prescription drugs and medical care continue to get more and more expensive. So it's important to understand what benefits you're entitled to, and what options you have that can help you fill in for coverage you lack.

If you are still employed, there is a reasonable chance that you (and perhaps your dependents) receive free or subsidized health care coverage through your work. But if you stop working before you are 65, you could have a period of time during which you need individual coverage.