Welcome (back) to our Six Stones series. Our financial adviser, Jordan, is sharing as many tips, ideas and advice for people going through a divorce as a humble blog will allow. He’s staying away from specific financial advice – it’s all general advice over here, be sure to get personal financial advice before doing anything – but we hope you find some useful information in here as you navigate through/out of your divorce.

In our last post, we talked about what we mean when we talk about ‘disability’ in the world of financial advice, and the important question we recommend asking as you work out your own risk equation.

But it’s really hard translating this from theory to reality. So to give an idea of what this might look like, and how we approach this discussion, let’s return to Louise.

Back to Louise

Fresh from exploring the impact of her dying, we ask Louise to press on and answer our key question:

“Louise, what would happen to you if you never able to work ever again?”

By reflex, more than anything else, she says “oh, it’d be fine, I don’t earn that much anyway and David could afford…oh.”

Louise stopped, sat back in her chair and started speaking softly.

“Well, if I couldn’t work, I guess David would have to take the kids more often. But then he’d have to change jobs, so how would he afford that?

And I’m not sure what my work would do, I guess they’d have to hire someone else in. I suppose I could help them get up to speed, so that wouldn’t be an issue.

I’d have to work out with my siblings what we’re going to do about Mum too.”

I generally don’t like interrupting as people work through these issues, but I noticed Louise was thinking about everyone else but herself.

“Louise, if I can interrupt you for a second, do you mind if I add some detail to the question?”

“What’s that? Oh, sure, of course.”

“OK, so you’re not able to work anymore. Let’s say, because of a horrible accident, you now have an acquired brain injury and you simply can’t work.”

“My god!”

“I know, it’s not a fun topic! But when we’re working through this, I prefer to focus on the severe end of the spectrum because that’s when you’d be most in trouble.

Now, after finally getting out of the hospital, you come home.

For the first year or so, you need ongoing, high-level medical care and supervision, but you start to build a routine and regain some level of independence.  

But you fade by mid-afternoon and struggle to do anything like getting dinner ready or helping the kids much.

In that situation, I would suggest that how David might manage or what might happen with your work will become far less important.

And as hard as it is to hear, if you were to be totally and permanently disabled, your health and care would have to become more important than your Mum’s.

There would be plenty of important discussions happening at the same time, don’t get me wrong. And big decisions will be made.

But it’s better to assume you won’t be able to contribute to them.

So, in light of such a horrible scenario – what would happen to you if you were never able to work again?”

“OK, I see what you mean – I should put myself first in this then?”

“That’s right – for a change!

So tell me what would happen, then we’ll talk about what you’d prefer to happen. And I’ll put some numbers around that.”

Louise took a deep breath, looked out the window and started talking, “Well, if I had to stop working, then we wouldn’t be able to pay the rent.

There’s no way I could put money towards the kid’s school fees.

And I couldn’t afford to pay down those debts. I mean, they’re not huge, but I couldn’t afford to pay them off.

The kids…they’re too young to look after themselves totally and look after me…it’s not fair to put that on them. I’d need real assistance with that.

My brother and sisters would have to work out what do with Mum.

I don’t know what the Centrelink benefit would be, but from what I see at the doctor’s office, I don’t think I’d want to rely on it. God, the medical bills, they can add up. I see some of the patients at work and the extra’s add up so quickly.

I know a few home nurses too, and they’re not cheap so if I needed ongoing care I don’t know what I’d do.”

I was writing down each of Louise’s worries as quickly as I could, and asked, “is there anything else you’d be worried about in that kind of awful situation?”

“Well, I wouldn’t want to keep renting either, you just don’t have any control then. What if I need to renovate or anything like that?

Oh, our place has two stories, that wouldn’t work!”

“Thanks Louise. So I can make sure I got it all, if you couldn’t work anymore, you’d worry about:

–           Where you’d live, and how you’d pay for it;

–           The kid’s education;

–           Your debts;

–           The initial medical bills;

–           The ongoing medical bills;

–           Home care and assistance;

–           What income you’d live on.”

“Yeah, that’s everything I reckon. Good lord, how do people do it?”

I was still scribbling notes on the point’s we’d clarified, but looked at Louise, “pay for all this, you mean?”

“Yeah, I mean, that’s going to add up isn’t it?”

“Well, most people get by, but it’s really, really hard. The NDIS is starting to help people, but that doesn’t do everything.

Unless you’re already wealthy, you need some pot of money to come along during the experience to make sure you can rebuild your life as best you can. It’s really tough.

Because you’re right, it can be very expensive.

I’ve been putting some numbers into our calculator here, and this is how much money you would need access to – in the event of your disablement – to do everything you’ve mentioned.”

And we turned to our little calculator which shows that:

• taking into account that Louise would likely access her super and the cash savings if something happened

• assuming Louise bought a house for around $800,000, Louise would need around $1.36m in cash to take care of all her worries.

The numbers and information Louise has provided result in these numbers specifically:

“Um. I don’t have $1.36m though.”

“I know!

This number is important, but it’s worth just seeing it as the Impact in your Risk Management Calculation.

While the Likelihood of you becoming disabled is actually quite low, the Impact of it happening is huge – $1.36m huge in fact.”

Just Getting Started

As you can see, there are a few areas Louise might like to revisit.

For instance, does she want to contribute that amount towards the school fees, with the idea that David will need to stop working?

Will $40,000 a year pay for enough home care to provide Louise with a reasonable quality of life?

But the real value of what Louise has done here is in starting the discussion.

Now that we have something down on paper, the conversation can pivot from ‘I don’t know what I’m worried about exactly’ to ‘Well, here’s what I’d like to change’.

Louise’s Risk Management Plan

Now that we’ve worked with Louise to articulate her Worries, then Quantify them, we can add another row to her RMP:

The Missing Piece

You’ll notice that this calculator doesn’t take into account the income Louise and her kids will need to actually live. We’ve included the debts, the school fees and expenses arising from her New Life.

But nothing to pay an electricity bill, buy Thai food on a Friday night or maybe even go away for a long weekend.

We address this in a later section, but I just wanted to flag it here that we’ve (deliberately) excluded a huge piece from the disability picture.

But first, our next (uplifting) post addresses the worst start to a conversation you can imagine, the awful stats around serious illness and why money still matters on a hospital ward.

Like I said, uplifting…