Author Topic: Big financial changes after being injured  (Read 4106 times)

ginevraweasley

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Big financial changes after being injured
« on: July 17, 2016, 10:37:41 AM »
Hey all,

I have a lot of background to share but I'd like to keep this post succinct so please accept my apology for the following formatting:

-My husband, 36 years old, is now disabled after being hit by a car while riding his motorcycle back in February.

-I am 28 years old and just started working a part-time job at $10/hr plus going to school full-time. I quit a $40k/year job back in December because it had a 1-hr one way commute and involved 40 hours a week of intense self-hatred that seeped over into all other aspects of my life. I haven't been employed since then (until I just accepted my current job which I start next week) because of my husband being injured.

-Husband is still employed, though out on disability at the moment, and makes $56,000 per year.

-His disability pay rate is 50% of his salary, currently $1660 per month.

-Up to now we have been living a consumption-driven lifestyle and have $70k in debt ($25k student loans, $3.5k car note, the rest credit cards) and a $150k mortgage with PMI (only put down 5%).

-Our biggest spending issue is eating out.

-He has about $80k in retirement savings meaning 401(k) and a cash pension plan.

-We currently have $20k in an account set aside for accessibility renovations on our house (adding a ramp, reno 2 bathrooms, bring laundry inside from garage).

-We have $15k in our savings account.

-We have $20k in our checking account because I don't know what else to do with it as a lot of things are up in the air right now (for example, whether he will receive Social Security Disability payments, whether he can go back to work and when, etc.).

-The bulk of the money in the three accounts mentioned above came from a payout of accidental dismemberment insurance from his employer.

-Depending on a number of things, we may receive up to $250k (after paying lawyer and hospital bills) from an insurance settlement.

-After we receive those funds, we would like to pay off the $70k in debt immediately.

-We would like to put aside $100k for my husband's medical needs such as prosthetic legs, power chair maintenance or replacement, etc.

-That leaves about $80k which we would like to use to pay cash for school tuition (he is also in school, part-time for engineering), purchase a camper, build an emergency fund, and stash for retirement.

-I will be in school four more years and he will be in school about six more (I am going full-time and he is going part-time).

-When he finishes his engineering degree he will be 42 and should have an earning potential of $75-80k.

-My degree will be in accounting. I will be 32 and expect to earn about $60k starting out. We live in an area with a lot of Navy/DoD presence so I would probably look for an accounting job with the US Gov't to receive good retirement benefits and regular raises, although I want to start my own business eventually.

My questions are:

Where do we start? I don't even know how to assess what we have to work with because it's not a basic income minus expenses sort of deal right now. In your opinion, with $35k in the bank right now, my husband earning 50% of his salary, and me earning around $600/month take home (which will be deposited directly into the savings account), and paying minimums on most of our credit obligations due to the impending settlement payoff, how do we build a budget and figure out what should we be focusing on? Cutting spending, putting money in a different vehicle than checking account, paying off mortgage (want to get to 80% LTV so we can refi and get rid of PMI), etc.? All of the above? Something else?

How should we treat his $100k medical fund? Where should we put it? It would not be needed on an emergency basis, we should have plenty of advance notice before we need to draw from it.

Thank you :)

bogart

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Re: Big financial changes after being injured
« Reply #1 on: July 17, 2016, 03:20:00 PM »
I'm so sorry to hear about your husband's accident.

I'd think you'd be well advised to pay off any high-interest debt (say anything over 4%) immediately, figuring that you can always use CCs again if you do find you suddenly need to spend money to cover expenses such as home refitting (which obviously is a priority) or medical needs.

How does your current monthly income compare to your (routine) current monthly expenses?

lbmustache

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Re: Big financial changes after being injured
« Reply #2 on: July 17, 2016, 04:26:37 PM »
I too am sorry to hear about your husband's accident.

This post was a little hard to follow, as you mention, because a lot of the numbers are hypotheticals. I'll do my best to help and hopefully some others can chime in too. Some general questions/thoughts to help us help you:

#1: Like bogart mentioned, what are your monthly expenses relative to your current income? Are you breaking even? Under? Over?

#2: What are the interest rates on the car loan and credit cards? You have over $40k in credit card debt?

#3: How much do you spend on eating out? (Also relative to #1) Is this a new thing (post-accident) or an established longterm habit?

#4: You have $55k in liquid cash. (Factoring in the reno money here)

#5: Possibility of up to $250k - I would expect lower just so if you get $100k it doesn't disrupt your plans.

#6: Jobs are too far out (4 and 6 years respectively) considering your current situation, so I would not really factor in that money just yet, relative to all other things.

#7: Is the student debt $ going to rise because you are both in school?'

#8: Will you be able to refinance the mortgage if your husband is unable to go back to work?

Ok, now that this is a bit easier to break down... my suggestions - and again, hope others chime in for more guidance.

A: I would get rid of the car loan. It's only $3.5k, just do away with it.

B: I would move most of the liquid cash to savings (checking means you are earning no interest), which should be easily accessible assuming it's the same bank. If you don't need it to be very accessible, others will have suggestions on good places to put it.

C: If you have multiple credit cards, I would try to pay off the ones with the highest interest rates using some of the cash you have. You're just digging a bigger hole for yourself by only paying the minimums. If another emergency arises, you have some cash, and you could always in theory put it on another credit card.

Metric Mouse

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Re: Big financial changes after being injured
« Reply #3 on: July 17, 2016, 05:09:24 PM »
Liquidate the retirement accounts and pay off the debt. It's time to put out the fire in your hair. No sense in having a retirement fund if you're going deeper into debt every month.


crispy

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Re: Big financial changes after being injured
« Reply #4 on: July 17, 2016, 05:53:17 PM »
250K seems like a low settlement for the types of injuries you are mentioning.  Do you have an attorney representing you? I am not always a proponent of suing and settled without an attorney for a car accident last year, but this seems like a pretty complicated situation.

acepedro45

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Re: Big financial changes after being injured
« Reply #5 on: July 17, 2016, 06:16:36 PM »
Quote
I don't even know how to assess what we have to work with because it's not a basic income minus expenses sort of deal right now.

I think the OP hit the nail on the head with this sentence. Untangling it is key to understanding where to go from here. It depends heavily on how long and even if her husband is able to resume working a regular job.

If he can go back to work  fairly soon, the usual MMM prescription applies to her situation: cut out spendypants expenses like the camper (sorry), prioritize paying down high interest debt, get rid of PMI, sock away money in retirement accounts. Use the insurance settlement to get rid of debt and get your husband in a comfortable living situation if the house you have now needs work.

If it is long-term, uncertain, or possibly never that her husband resumes work, a whole new set of long-term questions need to be answered. How much does long term disability insurance cover, does it ever run out, what are his medical needs and how much will they cost?

In the second case, I don't think it's necessarily the right choice to pay down debt with every scrap of available liquidity. There's so much uncertainty it makes sense to keep a lot of cash on hand to deal with the unexpected.

You have my sympathy.

ginevraweasley

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Re: Big financial changes after being injured
« Reply #6 on: July 17, 2016, 09:19:38 PM »
Hi everyone,

Thanks for responding, even my "succinct" version was all over the place. It does seem like I asked for help a little prematurely since a lot is up in the air; I apologize for that and am very grateful you all responded anyway!

Let me make our best case scenario a little bit more clear. In the next few months we receive $250k, pay off all debt except mortgage, stash $100k for medical, and use the balance for savings for tuition and retirement. We refinance our house and lower our payment from $1145 to $900 or so. My husband returns to work and earns $3k per month after tax, and I earn $600 per month after tax. This would cover all of our expenses and allow for paying off mortgage/saving, assuming we get the eating out under control. (Which we will.) This is where we would start our Mustachian journey, and I would go on to get my degree and increase my earning potential, eventually using my salary to build the stash while living off of husband's salary. So I guess we consider this part right now to be our Mustachian prequel, trying to get things organized/prepared for the future. Because of our late start we will likely not be true Mustachians retiring less than 10 years from the start date, but I think we could do 15. Once our degrees are complete we'd like to move, about 2 hours away close to my family, and build a house, renting this one out, so that could be an additional stream of retirement income once the mortgage is paid off.

Okay, so back to the original questions and responses. I separated these responses so you guys only have to read the ones you were asking about, I hope it helps.

1. Yes, we have $40k in credit card debt. I omitted much of my self-flagellation from the post for brevity ("brevity") but rest assured I feel horrible about it and stay awake nights thinking about it. It's split pretty evenly between the two of us. We were paying more than the minimums before the accident (doing a snowball type thing) but when shit hit the fan I put all the autopays on minimums. I've left them there only because of my intense fear of moving money out of checking right now.

2. Eating out is a long-term habit for me, one I brought into our marriage. I have spent the last year learning how to cook and before the accident we were doing much better about it as we were counting calories with MFP and eating at home a lot more. Since the accident, well, not so much lol. This is something we have immediate plans to change. (As in, today I went grocery shopping and tomorrow I will be bulk cooking and freezing meals to get a nice stash going.)

3. It's hard to talk about "income" right now. If you mean literally what we are getting paid each month, right now that is $1660, and will be $2260 once I start getting paychecks, and no that is not enough to cover our expenses. However, for the past five months we have been living off of the money in our checking account, which is why it's so large right now. I am loath to move any money around just from being terrified of potential surprises. When/if my husband goes back to work (we are aiming for mid to late fall assuming he is cleared to return by both his physician and his company's physicians) or when/if he is approved for SSDI, we will have additional income. So, yes, we have plenty of money to pay our monthly expenses at the moment, and time to whittle them down as needed (especially food) which is why I wanted to get a start on making a plan. I don't plan to keep our checking account at $20k forever, though, so eventually this will turn into a more normal situation where the money comes in and the auto drafts go out and the extra goes into savings. Also right now my checks will be deposited into the savings account, not the checking account.

4. Student loans will not increase as we will pay cash for our tuition from now on, assuming we are able to. We are both at community college, so it's not so bad. I just paid $3,500 for my tuition, my books, and his tuition for this fall. In fall 2018 we will both move on to a 4-yr university that will be a little more costly.

5. The settlement I mentioned is the uninsured motorist coverage payment, not a civil judgment against the person who hit him. He does have an attorney whom we trust. His coverage is $375k and if all goes perfectly, we will give 1/3 to the lawyer and get $250k for ourselves. The risk for this money (the other option besides "going perfectly") is any liens against it from interested parties, namely his health insurance company. That is why we have the lawyer, to hopefully protect as much of this money as possible. It's possible we won't get the full amount, in which case we will still pay off at least the consumer debt and then funnel the rest into his medical fund. My husband hasn't decided if he wants to pursue a civil case. It will cost us more money, and the person who hit him is young and was driving uninsured, a fair indicator that she does not have any assets for us to claim. We could, hypothetically, win any judgment against her without being able to receive any of the monies. The judge could award us anything, say $800 billion, and we may only be able to get a small wage garnishment, or nothing at all if she bankrupts the judgment. It doesn't matter what we are awarded, it matters what we can collect, if that makes sense. His attorney is focusing on the insurance side of things for now and once we are settled there we can decide to give the go ahead on pursuing a civil case.

6. His medical needs will primarily be equipment-related. He is still in good health after the accident. Thank god he was a healthy weight, drank lots of water and was active, and didn't smoke or have any other health issues. His left leg is amputated and his left arm is paralyzed, although we are pursuing some neurological surgery options with the arm. He will definitely walk again, though possibly not full-time (may use chair part time). His money would be set aside for prosthetics (insurance coverage can be difficult, plus if you need anything extra like a waterproof leg for showering, etc. it's OOP) and equipment like maintenance on his power chair. Assuming we can put the $100k (or whatever amount) in a place where it earns some money, I am hoping it can be a self-sustaining pool as it should be infrequently used. Also, I pretty much made up this number. Prosthetic legs range from $5k to $100k depending on how tricked out they are; my husband's amputation is very high up so he will likely never run and won't need special athletic legs. But who knows. I felt like $100k was a safe # but it's up for analysis and change.

7. One the refi front, the improvements to the bathroom should hopefully improve our home appraisal. We also installed some hardwood and ripped up carpets/refinished hardwood last year when we bought the house. Creating a laundry/pantry room should also increase the home value. Basically we are making the house (one floor, thank god!) accessible for my husband but also getting some value out of it, like a 2 birds 1 stone situation. Our house appraised for $168k when we bought it; if our improvements can earn an appraisal of $180k and we pay off $5k of mortgage principal, we will be at 80% LTV. We want to pay off our debt so that we have the credit boost to refi and get rid of PMI and also lower our rate (which is 4.5%).

8. I don't know if we can refi if my husband never returns to work. If he does not return to work, he should be eligible for SSDI long-term, which I assume would count as income. I don't know what amount he will receive, or even if he will be approved (application filed 2/24 of this year, still pending review as of today LOL). With me only making $10,400 a year at 20 hours per week $10/hr for the next few years, I'm not sure how all of that would be factored in. I have to imagine they would take assets into account, but I'm not sure. We want to refi with our credit union (have a mortgage mill type place right now).

9. Sorry to the previous poster but we won't be liquidating the retirement income. I just did that with mine when I quit my job in December--which was either the worst timing ever or the best, since I didn't have to worry about losing a job due to living in a different city for two months while he was in the hospital, and we also had a cash cushion in our checking account so I could keep paying the mortgage and bills while waiting for some of the insurance monies to trickle in. In the worst case catastrophic scenario where we do not receive a penny of settlement money and my husband can never return to work, maybe we would do that. But it is extremely likely we will receive a large cash settlement with which we can pay off at least the $40k in consumer debt.

10. I think I've answered everything so let me get in a plug now... please do not MMM your way out of proper insurance coverage. Collision/comp, sure, who cares, but max out your liability and uninsured coverages and the medpay option as well (we received $10k from the medpay coverage alone). Also, if your employer offers supplemental Accidental Death & Dismemberment insurance, buy the maximum allowable coverage. It's only a few bucks per pay period, but in our case it made a huge difference because my husband only had the employer-sponsored 1x salary. For like $3 a pay period he could have purchased 5x salary coverage and we would have received over $200,000 from that policy alone. NEVER SKIMP ON INSURANCE EVER basically.

electriceagle

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Re: Big financial changes after being injured
« Reply #7 on: July 18, 2016, 07:43:58 PM »
Liquidate the retirement accounts and pay off the debt. It's time to put out the fire in your hair. No sense in having a retirement fund if you're going deeper into debt every month.

Sorry to be rude, but this is a very bad idea.

Retirement funds are bankruptcy-protected. You should never cash out your retirement accounts to pay off debt, unless that debt is from child support, which is bankruptcy-proof as well.

To the OP: Your husband's settlement will not be enough to cover the long-term costs of his injuries. I realize that my words may seem harsh, but he will lose money through harm to his career and through an inability to care for himself in the way that he would have before the accident. Think of the $100k as covering one-time expenses (like prosthetics) and helping out for a couple of years, but not as something that you can invest for income.

Unfortunately, it sounds like the cost of suing the guy who hit him might exceed anything that you might recover. The guy would probably settle for millions of dollars, and then walk the judgement over to the bankruptcy court and start over.

It sounds like you own your house. Do you know what the bankruptcy exemptions are in your state and whether your equity approaches that amount? I would think twice before investing in renovations if they would put you above the limit.

I know that it sounds like I'm a pessimist, and I may even sound like an asshole, but I suspect that you will eventually be faced with choices between being financially prudent and maximizing recovery from the injury. Thinking about what happens if you have to abandon finance for health might be worthwhile, even if just as a mental exercise.

ltt

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Re: Big financial changes after being injured
« Reply #8 on: July 19, 2016, 05:25:08 AM »
250K seems like a low settlement for the types of injuries you are mentioning.  Do you have an attorney representing you? I am not always a proponent of suing and settled without an attorney for a car accident last year, but this seems like a pretty complicated situation.

Sorry about your husband's accident.  I would agree with this wholeheartedly.  Will your husband have to seek ongoing medical treatment related to this accident for the rest of his life?  If so, this number seems really low considering the cost of medical care here in the U.S.

ltt

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Re: Big financial changes after being injured
« Reply #9 on: July 19, 2016, 06:41:31 AM »
Wow, I just read through your last detailed post.  So sorry this happened to your family.  You have a lot of thinking to do in terms of long-term care and thinking many years down the road.  You and your husband are now adjusting to a new normal, which I'm sure is quite difficult.  He is now 36---the body will start going through many changes over the next decade as middle age approaches.  Now add paralysis and amputation, and the journey will be more difficult.  Not meaning to sound mean here by any means, just wanting you to do some thinking over the long-term.  You will, more than likely, need to take on more of the physical responsibilities around your home.

If your husband will be in a wheelchair part-time and, at some point, be able to return to work, how will this work in terms of transporting the wheelchair to his place of work in a vehicle?  Will you need another vehicle in order to do that?  Will he be able to get the wheelchair in and out of a vehicle if he has paralysis on his left side? 

Once again, I do believe that the settlement money from insurance is just too low for all the things he will need throughout his life.  The $100,000 you are thinking about stashing is simply just not enough for the long-term medical care in this day and age.  How are all your medical bills being paid now? 

If the individual that hit him was driving without insurance, then that tells you right there that they are not financially responsible, so suing and then trying to recover any monies would be, as my father would say, trying to squeeze blood out of a turnip.  How much time and energy do you want to go through in order to try and "get" something you may never be able to get?

Renting out a home two hours a way will be difficult, unless you are planning to do a lot of running back and forth when things break down or a roof is leaking or the heating/cooling is not functioning, or a window needs to be repaired.  Best to sell it altogether and put the money toward building a home near family that is functional for your husband.

Please keep us posted on your situation.

frugaliknowit

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Re: Big financial changes after being injured
« Reply #10 on: July 19, 2016, 09:37:34 AM »
My suggestion is that if/when your husband is able to return to work, you work FULL TIME and go to school part time (the opposite of what you are doing now).

mozar

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Re: Big financial changes after being injured
« Reply #11 on: July 19, 2016, 04:10:15 PM »
The federal government has something called a co-op where you start working for the govt while in school and become full time after graduation.

snuggler

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Re: Big financial changes after being injured
« Reply #12 on: July 20, 2016, 05:32:45 AM »
Can you accelerate your graduation date?  By, for example, attending classes during the summer, and doing 18 credit hours (or whatever the max is at your school) instead of the standard 14/15?  Any time you can shave off of your lower-earning time will help your financial situation dramatically.

Metric Mouse

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Re: Big financial changes after being injured
« Reply #13 on: July 20, 2016, 07:06:13 PM »
Liquidate the retirement accounts and pay off the debt. It's time to put out the fire in your hair. No sense in having a retirement fund if you're going deeper into debt every month.

Sorry to be rude, but this is a very bad idea.
Quote

So your advice is continue to make obscene payments every month throughout a reduced-income scenario, plan for bankruptcy, and then liquidate the accounts? I guess we'll have to disagree on that. No biggie.

BlueHouse

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Re: Big financial changes after being injured
« Reply #14 on: July 22, 2016, 03:09:07 PM »
ginevra,
Congratulations to you are in order for mapping out your needs for the future instead of just seeing a windfall now and spending it all.  You are on the right track by starting to figure out what all of your needs will be. 
I agree with others who say to never liquidate a protected account in order to pay off unsecured credit.  If you ever need to declare bankruptcy, you can dump the credit card debt and retain your retirement accounts. 

I don't have any other advice to offer, except that I recently recovered from a pretty bad injury and I found that using a crockpot and a rice maker was a life-saver for me.  I also have a big eating-out habit, and using those two contraptions kept me home, eating delicious meals, and were do-able while I was hobbling around on one leg and without full use of arms.  Maybe look into the InstantPot instead of the two items.  It sounds as if your husband might want to take on some meal-cooking while you are in school and at work. Could be good therapy for him while he figures out how to do other things around the house differently than he's done before.

good luck to you.  You definitely have the right attitude to make this work.