Financial Preparedness in the Face of Opioid Addiction
With drug overdoses now the single largest non-natural killer of young people, the opioid crisis is taking a terrible toll. Unfortunately, West Virginia has been one of the states hit hardest by this epidemic. It is having an impact on most families, hospitals, businesses, and everyone who is an active member of the community in one way or another.
Most people don’t plan on having a loved one fall victim to addiction but the sad reality is that it happens and, in West Virginia, it happens quite regularly. Here’s what families may have to do financially to adapt if their family is impacted by the opioid crisis, based on my experience being a wealth manager in West Virginia, the #1 opioid state.
1. Stay liquid and supersize the emergency fund
It’s encouraging to see someone get help for their opioid addiction, but the reality is that most people go through rehabilitation more than once. With the cost of rehab not fully reimbursable by most health insurance plans, the burden of paying for expensive (and often repeated) treatment falls on the family. It can be financially devastating.
While in no way is this an expression of any financial advice geared towards anyone in particular, it is my general experience that families impacted by the opioid crisis with a loved one in rehab will be well served to keep enough cash on hand in liquid vehicles. Rigid, highly structured products tend not to work well if you’re in a situation when you may have wide fluctuations or a need for immediate liquidity. That way, they can access the cash if services are required in a hurry without having to worry about paying penalty fees or losing principal value.
As a parent, it is natural to sacrifice all you have, even your own means, to save your child. If your loved one is a victim of opioid addiction, you never know when you’ll be called upon to support them. It is best to be prepared.
While I typically recommend that families keep 3–6 months of expenses in ready cash in case they lose their job or become unable to work, for an opioid crisis impacted family, I would suggest keeping almost double this amount.
2. Know what you can borrow against (but only if you need to)
If you can access cash through a straight withdrawal without the obligation to pay it back, it is usually a better scenario. But what if you can’t? Examples of vehicles that you can borrow against are cash value life insurance (whole life insurance) policies, IRAs and 401ks, and even the equity in your home. These vehicles can be borrowed against but there can be fees that go along with it.
In this scenario, and in general, it’s important to read the fine print and understand all the consequences that go along with financial moves like this. Between minimum account value thresholds, early withdrawal fees, interest fees, any other penalty fees, transaction charges, and the gains or losses you realize from liquidating securities, there can be some pretty significant financial and tax consequences for taking these actions.
3. Protect your wealth
Yes, I said it. It’s painful to admit but the truth is that the ravages of addiction can leave no bank account unscathed. The brutal truth is that an addict may devastate a family’s net worth to satisfy their addiction. It is incumbent upon families to protect themselves from this happening, for the good of all the family’s members.
While it is hard to do, families are well served to secure valuable assets, both physically and legally. For many, this involves putting together a sophisticated estate plan to ensure that the proper legal protections are in place for the family. While I’m not an estate planner, I do work with my clients’ attorneys to ensure that they know their options and that they work with the attorney to get the proper documents in place.
According to Kevin Johns writing on WealthManagement.com in 2017, families of addicts may wish to consider disinheritance, leaving the addicted child a smaller inheritance, placing the addicted child’s bequest in the hands of a sibling or otherwise trusted contact, or creating a discretionary trust. Each of these options come with pros and cons, so it is best to consult a legal advisor with questions.
4. Don’t sacrifice your own retirement savings for “encore parenting”
As a wealth manager in West Virginia, I’ve seen countless instances of extended families getting involved with raising children. If parents are involved with drugs, often it is the grandparents whose shoulders it falls on to raise their children.
For those thrust into an “encore parenting” role, as I like to call it, the experience can be very different the second time around. Often encore parents are faced with child rearing at a time when they’re not in their working years.
You may be living on a fixed income which, according to your plans, would have been enough to support your basic living needs. But now, you’ve got a child (or even two) to support and that means another mouth to feed, another body to cloth, and another person on your health insurance.
And of course, there’s the urge to provide beyond that for your child. You want them to have a normal life, as healthy and normal as can be despite the unfortunate circumstances. Many grandparents in this situation feel sympathy for the children for the adversities of life they face, through no fault of their own. But the “nice to haves” and “extras” activities can be pricey. What are you going to say when your child asks, “Grandma, can we go to Disney World?” or “Grandpa, I want to go to college.”
How far can you make your retirement dollars stretch? It can only go so far. Here’s where financial planning comes into play. Work with an advisor to understand your assets and future liabilities, set up a budget, and put together a cash flow projection that will help you understand the income and expenses you’ll likely be living with.
5. Choose a wealth manager wisely
When it comes to dealing with opioid addiction, not all wealth managers are made the same. You’ll want to work with someone who is extremely vigilant and pays a high degree of personal attention to his or her clients. While this may seem obvious, not all advisors deliver what they say they are going to. Some advisors focus more on meeting their quota and don’t put the needs of the client first.
Your service needs may go deeper than the average client. Here are examples of why:
- The advisor has to be objective and unemotional and guide you through decisions based on logic rather than emotion.
- The advisor should be paying enough attention to detect changes in behavior from either the addict or the family, namely people showing too much interest in controlling wealth, trying to intimidate other family members, or using guilt to gain access to family finances. Remember that you are appointing a guardian of your future hopes and dreams and your family’s legacy.
- You may need the advisor’s expert guidance in making complex decisions about health insurance policies, therapists, rehab centers, etc.
Summing it up: A West Virginia wealth manager’s perspective on helping families deal with opioid addiction
While it’s unpleasant to have to discuss these issues in such depth, I do it for the good of those affected. As with any affliction, silence in the enemy and open communication can save lives. If you have any questions about how to help your family financially survive the opioid crisis, please don’t hesitate to get in touch with me.
Disclaimers Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisory, a Registered Investment Adviser. Beacon Wealth operates independently of Cambridge.
Originally published at thedoctorweighsin.com on March 21, 2018.