Philpot’s BottomLine Tips: Protecting the Golden Goose

Once a year my husband and I must turn in a financial statement to our bank. We list the typical assets such as the value of our home, stocks, bonds, mutual funds and any other assets we might own.

On the opposite side of the form we list our liabilities such as any remaining mortgage value on our home or consumer loans. Once the liabilities are subtracted from our assets we arrive at our “net worth.” True this number is an estimated value, but it allows our bank to view a “reasonable” net worth.

We turn in the basic financial statement to the bank and glance at the bottom line and believe that is what we are really worth. The net worth number changes based on the value of the stock market or the real estate market. It is subject to extreme changes unless all assets are in very low-risk investments. If the assets on your financial statement are to be used in the distant future, the gyrating volatility of the net worth statement doesn’t really have an effect on your quality of life.

What about the greatest asset we have, but didn’t list on the financial statement. That asset is our ability to earn money over the remainder of our working years. Unless we are unfortunate and lose our jobs we are able to control how long we work and therefore we have control over our standard of living. Our ability to earn a living is, in my opinion, the greatest asset many of us own, not the asset that looms the largest on our financial statement.

We have the ability to become more educated, or start our own business. Unless health fails us, we often have the ability to choose when we will no longer work.

Many years ago, I had someone pose these two questions to me: If you owned a golden goose and that goose produced golden eggs which you could sell for food, clothing, shelter, etc., would you insure that golden goose and wouldn’t you want to keep that golden goose producing as long as possible?

Wage earners are the golden goose for themselves and their families. We have the power within ourselves to try to maintain our health in such a way as to be able to work longer, or to gain more intellectual capacity in order to enhance our earning power. Even if we earn our money in one profession, we often have the ability to rely on multiple sources of income.

A recent study by the Council for Disability Awareness (www.disabilitycanhappen.org) recently presented a report stating that the majority of wage earners are not prepared for the risk of becoming disabled. That same study found that more than 1 in 5 workers will be suffer a disability lasting for 5 or more years over their working life, while 1 in 4 of twenty-year-olds today will face a disability during their working careers. The risk of disability prior to age 65 outweighs the risk of dying before age 65; however I see many more workers insure against death than disability, even though disability has the greatest probability of happening before age 65.

Insuring future years of earning power against a disability or death is the ultimate act of love for our families. Have we ever thought what would happen to our families if our source of income was lost. What would that mean to them financially? How would that change their style of living? Would the children or grandchildren lose their source of funding for educational expenses?

Several years ago I heard about a case that reinforced my desire to educate people about the need to have a disability policy. A 35-year old man with a wife and two children had a motorcycle accident and became not only physically disabled, but mentally disabled also. He is living in a nursing home due to the extent of his injuries.

Being so young he did not envision the possibility of such a disabling event happening to him and did not have a disability policy. His wife, who did not work outside the home, has no additional income. She is taking care of two children, attempting to give as much time as possible to visiting her husband in the nursing home, and now has to work outside the home to make an additional income.

This was and is such a tragedy. No one should have to face these types of issues in their lives, especially at such an early age.  The injury itself is enough to deal with. The emotional issues consume all of the energy the healthy spouse has. Couple the emotional issues with financial issues and it can often become emotionally overwhelming.

To illustrate the potential lifetime value of this earnings power, let us assume that a male, age 35 making $75,000 annually, with a 3% annual cost of living adjustment were to suddenly die or to become totally disabled. Let’s also assume that he would have worked until he was 65 years of age. The present value of that future income stream equates to $935,200. The earnings potential of all of those years based on the assumed factors would be $2,269,976.

With numbers like this protecting some of those future earnings might seem like a prudent idea. Just might be a good idea to look into protecting the largest asset many possess — ourselves!

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Carolyn Philpot can be reached at [email protected]

Required regulatory note: Securities offered by 1st Global Capital Corp. Member FINRA, SIPC. Investment advisory services offered through 1st Global Advisors Inc.