Financial Resilience Planning: How to Prepare for Unexpected Life Changes

Mark and Julia are a financially savvy couple in their 50s who are meticulously focused on wealth accumulation. Mark manages their investments and retirement forecasts, while Julia handles everyday spending. Their strategy is solid and centered on growth. Recently, an unexpected economic ‘curveball’ was complicated by a family medical crisis, both of which required immediate access to cash.

In that moment of intense stress, Julia realized she knew what they owned but not how to access it without penalties – or who to call if Mark (the ‘family's CFO’) was suddenly unavailable. This revealed the critical difference between a great accumulation plan and a truly resilient one: the capacity to execute when the unexpected hits.

Building Security Beyond Saving and Investing

In the journey of life, we carefully plan our paths – saving up for a down payment on a house we pass by every day. Or investing for retirement. Or maybe even mapping out the itinerary for a dream vacation. We focus on the destination: building wealth. But what about the inevitable, sudden, and unpredictable detours?

No one is immune to life’s curveballs: a health crisis, an unexpected job loss, a market downturn, a parent in financial distress, or the sudden death of a spouse. These moments test not only our emotional strength but the very financial foundation we’ve spent decades building.

For the financially responsible couple or the individual who manages all the household's finances, a crisis can reveal dangerous gaps.

The difference between weathering a storm and being capsized by it often lies not just in the size of your portfolio, but in the depth of your emotional and financial resilience. What exactly is ‘financial resilience’? It’s the ability to recover quickly from setbacks. It’s a concept that goes beyond traditional ‘saving and investing’ and focuses more on long-term security and preparedness.

Here is a quick guide to stress-test your financial plan and build the scaffolding of resilience before the unexpected happens.

1. Re-Assess Your Emergency Fund: Is it Truly Adequate?

In some circles, the typical recommendation for an emergency fund is three to six months of living expenses. This is a good starting point, but for couples with substantial assets or those expecting a significant life change, it may be woefully inadequate.

Actionable Steps Toward Resilience:

Look beyond monthly bills: Your actual expenses include annual insurance premiums, property taxes, and expected capital expenditures (like a new roof or car). Don't just multiply your take-home pay by three or six. Create a ‘yearly expense buffer’ that accounts for these large, irregular costs – maybe by looking back three to five years at what you spent on such items to find a reasonable average.
Factor in the 'curveball cost': A job loss or a long-term health issue can greatly increase expenses (think higher medical co-pays, commuting costs for care, or temporary in-home help). For high-net-worth couples, consider building a liquid fund equivalent to 12 months of expenses if either spouse is nearing retirement or dealing with a health concern.
The accessibility check: Is your emergency funding easy to access? It should be held in a high-yield savings account or money market fund, not tied up in the stock market. Liquidity is the priority here, not growth.

2. The Critical Insurance Review: Coverage for the Long Haul

Insurance forms the bedrock of financial resilience. It acts as a mechanism that transfers catastrophic risk away from your portfolio. Unfortunately, many couples assume the coverage they bought a decade ago is still right for today.

Actionable Steps Toward Resilience:

Long-term care (LTC) insurance: This is often the most overlooked piece of the puzzle, as Medicare doesn’t cover most LTC. While skilled nursing care costs vary greatly by region, they often exceed $200,000 a year in Massachusetts and pose a serious threat to a 7-figure retirement nest egg. If you’re in your 50s, now is the time to explore this. Coverage becomes prohibitively expensive or unavailable as health conditions develop.
Life insurance and the "lost financial manager": If one spouse manages all the finances, their life insurance needs to cover two costs:

Replacing their income, if applicable.
Covering the costs of outsourced financial management, planning, and possibly even bill paying for the surviving spouse who is not financially literate. Importantly, the non-managing spouse needs to know where the policy documents are and who to contact.

Health insurance stress test: If one spouse is still employed, what happens to their health coverage if they unexpectedly leave their job? Learn about your costly COBRA options, the costs of private marketplace insurance, and the timeline for qualifying for Medicare, if applicable.

3. Estate and Beneficiary Updates: The Power of Specificity

When life throws a curveball – a second marriage, a divorce, the birth of a grandchild, or a shift in health – your legal documents must reflect your current reality. Outdated documents can cause lengthy legal battles and unintended financial consequences.

Actionable Steps Toward Resilience:

Beneficiary specificity: While having a will and a trust is important, beneficiary designations on IRAs, 401(k)s, and insurance policies usually take precedence over the will. If you remarried and haven't updated your IRA to include your current spouse, that money could go to your former spouse or an outdated designee. Review and confirm all beneficiary forms yearly.
The power of attorney (POA) for health and finances: POAs may be the most important documents for curveball planning.

Financial POA: The person you name must be financially responsible and fully aware of your accounts and assets.
Healthcare POA: This person must be capable of making tough medical decisions aligned with your wishes.

Crucial planning detail: For the spouse who manages all the finances, make sure that the non-managing spouse knows where the documents are stored and has met the people designated as the POAs. Additionally, introduce that spouse to the current team of professionals: financial advisors, tax accountants, and estate planners.

4. Contingency Planning for Market Swings and Economic Uncertainty

While no one can predict the market, a resilient plan doesn't rely on perfect market conditions. It assumes volatility and includes safeguards against it.

Actionable Steps Toward Resilience:

The retirement distribution strategy: For couples approaching retirement, your plan should detail where your income will come from if the market has a bad year (understand the concept of ‘Sequence of Returns Risk’ for the first 5-10 years of retirement). Consider multiple buckets:
The Protective Bucket: Up to five years of living expenses set aside in cash or high-quality, short-term bonds. We typically put aside two years. This helps you avoid selling depressed assets during a downturn.
The Growth Bucket: Focuses on long-term appreciation.
The Income Bucket: Focused on assets that generate stable cash flow (such as high-quality dividend stocks or bond ladders).
Tax diversification: A resilient portfolio includes funds in different tax categories: tax-deferred (like 401(k)s or traditional IRAs), tax-free (Roth IRAs), and taxable (brokerage accounts). This flexibility lets you choose the most tax-efficient source each year, regardless of the economic situation.

A Call for Transparency

The financial life of a successful couple often functions like a well-run business, managed mainly by the primary financial decision-maker. However, the biggest threat to that system is a sudden disruption to the family CFO.

Suppose you are the financial manager of your household. In that case, your most crucial act of love and responsibility is to create a Transition Binder or a detailed ‘In Case of Emergency’ document. This document is not just a list of accounts; it is a roadmap to the family's financial system.

Key Elements of the Transition Binder:

A list of all financial institutions and the purpose of each account.
Contact information for your core advisory team: financial advisor, estate planning attorney, CPA.
A summary of your income streams (pensions, Social Security, annuity contracts, investment withdrawals).
The login procedures (not passwords, but the process for accessing a password manager).
A list of any recurring subscriptions or bills.

For the non-financial spouse, the goal isn’t to become an expert overnight, but to know who to call and the immediate next steps to take to secure the family's financial future until stability is restored.

Building financial resilience is an ongoing act of proactive self-care and mutual support. It is the peace of mind that comes from knowing you have planned not just for the best, but for the unexpected. It’s a focus that moves you toward true, long-term security.

At WHCornerstone, we have extensive experience helping clients assess their plan’s resilience – and in shoring up any parts that could be stronger. To see if you’d like us to work with you on this, schedule a call with us soon. We're here to help.