Why Stress Testing Your Financial Plan Is Vital Right Now

By Egan on June 4, 2020

As the economy – and our daily lives – continue to shift surrounding the COVID-19 pandemic, this is an opportune time to perform a stress test on your financial plan. Even though other states throughout the U.S. are at various stages of re-opening, the lasting economic impact of the pandemic is inevitable. Whether you have had a financial plan in place for years without batting an eye, or you just re-visited your plan last year, everyone could benefit from a quick stress test right now to help eliminate potential risk that can be brought upon by various economic scenarios.

When stress testing your financial plan, there are two ways we recommend you go about it. First, you can conduct your own stress test by having an honest conversation with yourself (and your spouse) about the state of your current financial plan. Here are some questions we recommend you start with in order to find out where you stand on a very high level:

• Do I have enough money saved for the unexpected?

In these times, the unexpected has become our reality. These “unexpected” situations could be as serious as a job loss or loss of a business or as “common” as a car repair bill or sudden house repair.

• Am I in a situation to handle unexpected health care costs?

Even after the COVID-19 pandemic has calmed, there is still a chance of running into unexpected health care costs, especially as you move into retirement. Thinking about long-term care insurance, as well as contributing to a health savings account can be great ways to help keep your health care costs under control even in the event of an unexpected illness or injury.

• What does retirement look like? Can I sustain current spending habits through retirement?

Though we all would like to live as long as possible, longevity does have an impact on one’s ability to finance their entire retirement. Having an honest conversation with yourself about spending in retirement is vital.

• What does your insurance coverage look like?

As you advance in life, you’ll want to make sure you continually update your homeowners, car, health and life insurance. Without these insurances in place, one sudden injury or car accident could upend everything you’ve planned for.

• Can your income keep up with your debts?

In the case your income can’t keep up with your debts, your financial plan may be under stress. Ideally, you want your debt-to-income ratio to be around 36%. And if you are out of balance, a financial advisor can help.

That leads to the second course of action we recommend taking when it comes to performing a financial stress test: set up an appointment with a financial advisor.

You may think you’ve caught everything and asked yourself all of the tough questions, but our team here at Egan Wealth Advisors can help fill in the missing pieces you may not even have noticed to ensure you can achieve your financial goals, even during volatile times. Our team has decades of experience working with clients at every stage of life and we’re determined to help each of them live their best financial life.

Interested in setting up a virtual meeting to stress test your financial plan? Reach out to us at (800) 919-5010.