Preparing for the big ‘what-ifs’ in your financial life

Steps you can take to make sure unexpected events don’t interfere with your long-term plans


COMMON SENSE TELLS US that it’s impossible to eliminate all risk from our lives, financial or otherwise. We can’t control whether markets go up or down. A divorce, serious illness — or even a large, unexpected bill — could create a financial shortfall that throws your careful plans off track. “A number of life events can risk changes to income or savings and threaten an individual’s or family’s financial well-being,” says Lauren Sanfilippo, an investment strategist in the Chief Investment Office for Merrill and Bank of America Private Bank.

While you can’t prevent these scenarios, by taking a holistic view of your financial future, your advisor can recommend the best options for helping preserve your finances from most of them, says Rachel Scholl, director, Wealth Management Lending Strategy Execution, Bank of America. Here’s how you might prepare for some of the most common — and risky — what-ifs.

What if you have a sudden need for cash?

 “You never want to be in a situation where you have to liquidate assets at an undesirable time in the market or run up credit card debt to pay your bills,” says Scholl. A cash-management strategy can help preserve your finances against a job loss or an unexpected expense.

Ways to prepare: An emergency fund is a key component of any cash-management strategy, notes Scholl. Review several months’ worth of recent expenses with your advisor to determine the right amount of cash to hold.

If necessary, your advisor can help you engage with a bank credit specialist to identify potential alternate sources for liquidity as well. For surprise big-ticket expenses, say a home renovation that runs $30,000 over budget, two alternatives you may want to consider are making use of the equity in your home or borrowing against your securities, suggests Scholl.

What if you’re faced with major medical expenses?

The typical working-age family in the U.S. spends 11% of its income on health care, according to the Kaiser Family Foundation.1 Post-retirement, the costs can be even steeper.

Ways to prepare: Check if your employer offers a tax-advantaged account such as a flexible savings account (FSA) or health savings account (HSA), which allow you to pay for health care expenses with pre-tax funds. The HSA — available only for those with high-deductible health plans — can be particularly valuable, because any unused funds can continue to be held in the HSA until your death (and in some cases beyond) and earnings can grow tax-free. “Instead of dipping into your IRAs to pay medical bills in retirement and paying income taxes on those withdrawals, you can tap an HSA tax-free for medical expenses,” says Paul Galliano, senior vice president, Retirement & Benefit Plan Services for Bank of America. For contribution limits and other information about HSAs, see our Contribution Limits and Tax Reference Guide.

Finally, plan for the worst-case scenario. “Seven out of 10 Americans over the age of 65 will have some health event for which long-term care is necessary,2 and the cost can decimate savings,” says Joseph Tantillo, director, Retirement and Personal Wealth Solutions, Bank of America. “Long-term care insurance could potentially preserve not only your wealth but also that of your children, who often shoulder the costs of caring for aging parents.”

“Seven out of 10 Americans over the age of 65 will have some health event for which long-term care is necessary,1 and the cost can decimate savings.”

—Joseph Tantillo, Director, Retirement and Personal Wealth Solutions, Bank of America

What if there’s disability, divorce or a death in the family?

Nobody wants to think about, let alone plan for, a dramatic change in your household’s income resulting from a significant life event like disability, divorce or an untimely death in the family. But given the high stakes, planning for these risks can be crucial to the future well-being of your loved ones.

Ways to prepare: When it comes to disability, insurance can be a crucial consideration. Find out whether your employer offers disability income insurance. Then assess whether this benefit provides enough income protection for your family in case you’re temporarily unable to work because of an accident or health event. If it isn’t available, you may want to consider purchasing your own policy to replace your income, or at least a portion of it.

In the event of a marital split, be aware that the laws governing the division of property in a divorce vary from state to state, but keeping an up-to-date inventory of your household assets and debts can help you divide them equitably. In advance of remarrying, you might consider setting up a trust to protect your family, says Burt Holland, National Trust Services, Bank of America Private Bank. Doing so enables you to ensure that children from the prior marriage are not overlooked as the eventual beneficiaries of your estate, while also providing lifetime support to a surviving spouse.

A trust can also offer other benefits as you plan your estate: setting one up allows you to distribute an inheritance to a child at set intervals, rather than providing an outright distribution, which may not be appropriate because of the child’s age or other factors. And as you age, a trust can help ensure the uninterrupted availability of assets for your care should you become mentally or physically incapacitated, says Holland. “A trustee can step in and pay medical and long-term care bills if needed, as well as manage all other aspects of your financial life and estate.”

Finally, a death benefit from a life insurance policy can help to keep your family solvent should you or your spouse die prematurely.

“It’s important to take the time to review investments regularly and adjust according to your time horizon.”

— Lauren Sanfilippo, an investment strategist in the Chief Investment Office for Merrill and Bank of America Private Bank

What if there’s a bear market?

It’s hard to watch your savings shrink at any age. But bear markets may be the riskiest for investors who need to start withdrawing from their savings soon, perhaps to pay for college tuition or to fund retirement.

Ways to prepare: First, make sure that your portfolio is well diversified. This means increasing diversification across asset classes, within asset classes and across geographies. “A wider breadth of investments may provide an expanded opportunity set for investment opportunities while potentially helping to minimize losses to your overall portfolio and preserve wealth,” says Sanfilippo.

It’s important to take the time to review investments regularly and adjust according to your time horizon, says Sanfilippo. For instance, a college-savings portfolio may be invested for maximum growth when college is 18 years away, but it may be better off shifted to all cash when college is imminent to help reduce the risk of a market — and savings — drop. Your advisor can suggest a strategy that’s appropriate for your age, goals, liquidity needs and ability to handle risk.

In fact, you can work with your advisor to address any number of risks that can potentially threaten your financial security, adds Scholl. Together, you can put plans in place to help prepare for nearly any eventuality.

A private wealth advisor can help you get started.

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1 "The Real Cost of Health Care," Kaiser Family Foundation, February 21, 2019

2 U.S. Department of Health and Human Services, “How Much Care Will You Need?” 2020.

Important Disclosures

Opinions are as of the date of this article 08/20/21 and are subject to change.

Investing involves risk including possible loss of principal. Past performance is no guarantee of future results.

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The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.").

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