I’m on the cusp of early retirement – how do I manage the fear of a 1% financial catastrophe?

As a parent and provider, one of the biggest concerns you can deal with is being gone. What happens to your family after that? How will your family survive without your income? These are the questions far too many parents have to deal with, even if it’s an unlikely scenario. 

In the case of one Redditor posting in r/ChubbyFIRE, this father is worried about his wife and three children. At 51, he’s concerned about what would happen if something unexpected were to occur, such as a significant medical issue, and how this might impact the family’s finances. 

The Worrying Dad

For this dad, at 51, married, and with three children, he’s expressing a very real sense of worry. His first concern is the possibility of being unable to re-enter the job market if something happens after retirement. More specifically, he’s worried about having to manage a health issue that requires a heavy investment that won’t be covered by health insurance.

Separately, he’s also worried about his kids’ future. He knows that if he worked a few more years, he could potentially double his net worth, setting his kids up very well. With a paid-off home worth $2.2 million (taxable equity at $2.6 million), as well as a 401(k) worth $900,000 and short-term deposits worth $300,000, the Redditor isn’t exactly in dire financial circumstances. 

However, with a $200,000 annual expense burn, there is some understanding as to why he wants more money set aside. Having been supported by his parents at a young age, he wants to do the same thing for his own family. As a result, he’s looking to take out $5 million in life insurance, which will boost the existing $1 million in coverage that currently exists. 

The Risk Factor Worry

At 51 years old, the Redditor is past the point of being in their 20s and 30s, an age when you are considered your healthiest as an adult. This means that at 51, with young kids and a spouse, he’s not wrong to be worried about his future. 

This said, the panic over the $5 million life insurance policy seems a little unwarranted. There is already a pretty sizable net worth to cover expenses, even if it means setting a tighter budget. There is no question that the 1% odds of something bad happening are low, but it’s unlikely that this father will feel any more at ease. 

An Umbrella Policy

The problem is that he is relying heavily on a life insurance policy to give his spouse and children peace of mind. Unfortunately, these policies are riddled with exceptions and clauses that could make the life insurance worthless for the wife in the event of a worst-case scenario. 

If the Redditor is determined to pursue this route, there is no question that they must be cautious with the policy. Choosing an umbrella policy isn’t as simple as calling up one insurance broker, picking a dollar amount, and making payments. 

There is so much more that needs to be considered, including conditions under which the policy will be paid out. More importantly, they need to be highly familiar with any exclusions that extend beyond the traditional instances in which a policy is well known to be canceled, such as suicide. 

It’s not completely without merit to want more money for the family in case of something horrible, but it’s far more complicated than just picking a policy. As it’s unlikely the Redditor will suddenly stop fearing the 1% scenario, which means the umbrella policy will likely happen. 

If the question is whether he should work a little longer to sacrifice for his kids, it’s arguably a better scenario than life insurance. He is guaranteed an income by working in his current role and continuing to save money. The life insurance policy is far less certain than a salaried role, which should make this decision fairly easy.