Menu

Share your bounty with your loves ones

Scott-Johnson---HeadWhile enjoying Thanksgiving, a holiday that once celebrated the harvest season many of us today may not be directly connected to agriculture. Yet we still gather on Thanksgiving with our loved ones to share whatever “bounty” we may have. But this practice doesn’t have to begin and end with food. Why not incorporate the spirit of sharing into your overall financial strategy?
Here are a few suggestions for doing just that:
Make financial gifts. You could give shares of stock to your loved ones, or perhaps give them money to help fund their IRAs. (They must have earned income, however, to be eligible to contribute to an IRA.) You can give up to $14,000 per year, per recipient. If you are married, you and your spouse can each give up to the $14,000 yearly limit.
Invest in your children’s future. To help your children meet the high costs of higher education, you might want to invest in a college savings vehicle. One option to consider is a 529 plan. When you contribute to a 529 plan, your earnings are subject to tax-free growth potential and distributions are free of federal taxes, provided they are used for qualified higher education expenses. (Keep in mind, though, that Section 529 plan distributions not used for these qualified expenses may be subject to income tax and a 10percent penalty.) Furthermore, if you invest in your home state’s 529 plan, you may receive state tax incentives. Tax issues for 529 plans can be complex, though, so you’ll need to consult with your tax advisor about your situation. Another benefit of 529 plans: You control the assets right up to the point at which they are actually used. So, if you have been putting away money for a particular child (or grandchild) and he or she decides against college, you can easily switch to another beneficiary.
Review your insurance policies. If something were to happen to you, is your life insurance sufficient to take care of your family? In other words, would there be enough money available to pay off your mortgage, send your children to college and help your surviving spouse meet at least some of his or her retirement expenses? A financial professional can help you determine if your life insurance is sufficient for your needs.
Consider involving your family with your estate plans. To help ensure your wishes get carried out the way you intended, consider keeping family members informed of your estate strategy, which could involve your will, living trust, power of attorney and other legal documents. And don’t forget to keep your beneficiary designations up to date on your retirement accounts and your life insurance policy. So if you’ve gone through changes in your family situation, such as a divorce or remarriage, work with your professional team, including your financial advisor and your tax and legal advisors, to make ensure your investment strategy aligns with your estate goals.
Once the turkey is eaten and the football games have ended, Thanksgiving will draw to a close. But consider these strategies sharing your “bounty” with your loved ones all year long — and throughout your lifetime.

 Scott Johnson, CFP, is a financial advisor with Edward Jones, 8146 W. 111th St., Palos Hills, 974-1965. Edward Jones does not provide legal advice. This article was written by Edward Jones for use by your local Edward Jones financial advisor.

Prepare far ahead for long-term care costs

Scott-Johnson---HeadNovember is Long-Term Care Awareness Month – a month dedicated to educating the public about the need to prepare for the potentially devastating costs of long-term care. And the more you know about these expenses, the better prepared you will be to deal with them.
To begin with, just how expensive is long-term care?
Consider this: The average cost for a private room in a nursing home is more than $87,000 per year, according to the 2014 Cost of Care Survey produced by Genworth, a financial-services company.
And the average cost of an assisted living facility, which provides a level of care that is not as extensive as that offered by a nursing home, is $42,000 per year, according to the same Genworth study. All long-term care costs have risen steadily over the past several years, with no indication that they will level off.
Many people, when they think about long-term care at all, believe that Medicare will pay these costs — but that’s just not the case. Typically, Medicare only covers a small percentage of long-term care expenses, which means you will have to take responsibility. Of course, if you are fortunate, you may go through life without ever needing to enter a nursing home or an assisted living facility, or even needing help from a home health-care aide. But given the costs involved, can you afford to jeopardize your financial independence — or, even worse, impose a potential burden on your grown children?
To prevent these events, you will need to create a strategy to pay for long-term care expenses — even if you never incur them. Basically, you have two options: You could self-insure or you could “transfer the risk” to an insurer.
If you were going to self-insure, you would need to set aside a considerable sum of money, as indicated by the costs mentioned above. And you would likely need to invest a reasonably high percentage of this money in growth-oriented investments. If you chose this self-insurance route, but you never really needed a significant amount of long-term care, you could simply use the bulk of the money for your normal living expenses during retirement and earmark the remainder for your estate. However, if did need many years of nursing home care, you could end up going through all your money.
As an alternative, you could transfer the risk of paying for long-term care to an insurance company. Many plans are available these days, so, to find the choice that is appropriate for your needs, you will want to consult with a professional financial advisor. Here’s a word of caution, though: The premiums for this type of protection rise pretty rapidly as you get older, so, if you are considering adding this coverage, you may be better off by acting sooner, rather than later.
None of us can know with certainty what the future holds for us. Ideally, you will always remain in good shape, both mentally and physically, with the ability to take care of yourself. But, as you’ve heard, it’s best to “hope for the best, but plan for the worst.” So, take the lessons of Long-Term Care Awareness Month to heart and start preparing yourself for every scenario.

  Scott Johnson, CFP, is a financial advisor with Edward Jones, 8146 W. 111th St., Palos Hills, 974-1965. Edward Jones does not provide legal advice. This article was written by Edward Jones for use by your local Edward Jones financial advisor.

The four key USES of cash

Scott-Johnson---HeadAs an investor, you may find that the elements of your portfolio that seem to draw most of your attention are stocks and bonds. After all, these investment vehicles, and others derived from them, provide you with potential growth and income opportunities — which is why you invest in the first place. Yet, you also may find significant value in a more humble financial asset: cash. In fact, you might be surprised at the various ways in which the cash, and cash equivalents, in your portfolio can help you complete your financial picture.
One way to understand the uses of cash is to look at the “USES” of cash. In other words, consider the acronym USES:

• Unexpected expenses and emergencies — You’ll need sufficient cash for situations such as a job loss, a home repair or an unplanned medical expense. During your working years, you should keep three to six months’ worth of living expenses in a cash account specifically designed to meet unexpected expenses. Once you’re retired, you may be able to get by on a smaller emergency fund — up to three months’ worth of living expenses, although you will need more for everyday spending.
• Specific short-term savings goal — Are you anticipating a big expense —a wedding, a big vacation, a down payment on a new home, etc. — sometime within the next few years? If so, you’ll want to set aside sufficient cash, with the exact amount depending on your specific short-term goal.
• Everyday spending — It goes without saying that you’ll need adequate cash for your everyday spending needs — groceries, utilities, entertainment, mortgage/debt payments, and so on. Of course, while you’re working, you will probably handle most of these costs with your paychecks, but you may still need to set aside one or two months’ worth of living expenses. Once you’re retired, though, it’s a somewhat different story. While your expenses may go down in some areas (such as costs associated with employment), they are likely to go up in others (such as health care). So your overall cost of living may not drop much, if at all. Consequently, it may be a good idea to set aside 12 months’ worth of living expenses, after incorporating other sources of income, such as Social Security and outside employment. In addition, you’ll have to decide on the most efficient way of drawing on your other sources of income, including Social Security and investment accounts such as an IRA, a 401(k), etc. It’s especially important to create a sustainable withdrawal strategy for your investment portfolio because you don’t want to run the risk of outliving your money.

• Source of investment — You’ll want to have some cash available in your portfolio — perhaps 2 percent to 3 percent of the portfolio’s value — to take advantage of investment opportunities as they arise. Also, having even a small percentage of your portfolio devoted to cash can modestly improve your overall diversification — and a diversified portfolio is your best defense against market volatility. (Keep in mind, though, that diversification can’t guarantee a profit or protect against loss.)
So, there you have it: four key USES of cash. Taken together, they provide some good reasons to keep at least a modest “stream” of liquid assets in your portfolio.

Scott Johnson, CFP, is a financial advisor with Edward Jones, 8146 W. 111th St., Palos Hills, 974-1965. Edward Jones does not provide legal advice. This article was written by Edward Jones for use by your local Edward Jones financial advisor.

Protect your retirement against market volatility

Scott-Johnson---HeadAs an investor, you’re well aware that, over the short term, the financial markets always move up and down. During your working years, you may feel that you have time to overcome this volatility. And you’d be basing these feelings on actual evidence: the longer the investment period, the greater the tendency of the markets to smooth out their performance. But what happens when you retire? Won’t you be more susceptible to market movements?
You may not be as vulnerable as you might think. In the first place, given our growing awareness of healthier lifestyles, you could easily spend two, or even three, decades in retirement — so your investment time frame isn’t necessarily going to be that compressed.
Nonetheless, it’s still true that time may well be a more important consideration to you during your retirement years, so you may want to be particularly vigilant about taking steps to help smooth out the effects of market volatility. Toward that end, here are a few suggestions:
• Allocate your investments among a variety of asset classes. Of course, proper asset allocation is a good investment move at any age, but when you’re retired, you want to be especially careful that you don’t “over-concentrate” your investment dollars among just a few assets. Spreading your money among a range of vehicles — stocks, bonds, certificates of deposit, government securities and so on —can help you avoid taking the full brunt of a downturn that may primarily hit just one type of investment. (Keep in mind, though, that while diversification can help reduce the effects of volatility, it can’t assure a profit or protect against loss.)
• Choose investments that have demonstrated solid performance across many market cycles. As you’ve probably heard, “past performance is no guarantee of future results,” and this is true. Nonetheless, you can help improve your outlook by owning quality investments. So when investing n stocks, choose those that have actual earnings and a track record of earnings growth. If you invest in fixed-income vehicles, pick those that are considered “investment grade.”
• Don’t make emotional decisions. At various times during your retirement, you will, in all likelihood, witness some sharp drops in the market. Try to avoid overreacting to these downturns, which will probably just be normal market “corrections.” If you can keep your emotions out of investing, you will be less likely to make moves such as selling quality investments merely because their price is temporarily down.
• Don’t try to “time” the market. You may be tempted to “take advantage” of volatility by looking for opportunities to “buy low and sell high.” In theory, this is a fine idea — but, unfortunately, no one can really predict market highs or lows. You’ll probably be better off by consistently investing the same amount of money into the same investments. Over time, this method of investing may result in lower per-share costs. However, as is the case with diversification, this type of “systematic” investing won’t guarantee a profit or protect against loss, and you’ll need to be willing to keep investing when share prices are declining.
It’s probably natural to get somewhat more apprehensive about market volatility during your retirement years. But taking the steps described above can help you navigate the sometimes-choppy waters of the financial world.

 Scott Johnson, CFP, is a financial advisor with Edward Jones, 8146 W. 111th St., Palos Hills, 974-1965. Edward Jones does not provide legal advice. This article was written by Edward Jones for use by your local Edward Jones financial advisor.

Prepare yourself for the unexpected

Scott-Johnson---HeadAre you ready for this?
September is National Preparedness Month. Sponsored by the Federal Emergency Management Agency (FEMA), National Preparedness Month seeks to educate Americans on preparing for natural disasters and other types of emergencies. But you’ll also need to prepare for unexpected events in many other areas of your life — particularly those events related to the financial security of you and your family.
Here are some of the most important of these events, along with possible preparations for them:
• Unanticipated early retirement – If you encounter a “downsizing” or other occurrence that results in the loss of a job, or even the end of a career, before you expected it, would you be able to avoid major disruptions to your lifestyle? To help prepare for such a loss of income, make sure to fully fund your IRA each year. The maximum contribution is $5,500 per year plus an additional $1,000 for those age 50 and older.
• Disability – Even a short-term disability can seriously harm your finances — and a long-term disability could prove devastating. Your employer might offer some form of disability insurance, but it may not be sufficient. So you may need to explore private coverage.
• Personal liability – If someone were ever injured on your property or due to some action of yours, you could face legal actions demanding hundreds of thousands of dollars. To help protect yourself, consider adding umbrella liability insurance.
• Changing family situation – Changes in your life — marriage, divorce, remarriage, children, stepchildren — can drastically affect your estate plans and the type of legacy you want to leave. To prevent unpleasant surprises for your family, make sure you periodically review beneficiary designations on your investment accounts, such as your IRA and 401(k), and work with your tax and legal advisors to update your estate-planning documents — will, living trust and so on — as needed.
• Outliving your money – Once you reach retirement, your greatest concern may be that you’ll outlive your money. To help prevent this from happening, create a sustainable withdrawal strategy — that is, determine how much you can take out each year from your investment and retirement accounts, and stick to this amount.
• Need for long-term care – You can’t predict whether you will ever need to enter a nursing home or require the assistance of a home health care worker, but one thing is for sure — these services are extremely expensive. Consider this: The national average for a private room in a nursing home is nearly $84,000 per year, according to a recent survey by Genworth, a financial security company. To help prepare for these costs, you may want to consult with a professional financial advisor, who can suggest appropriate solutions.
• Untimely death – Your absence could jeopardize your family’s financial security, particularly if you passed away while your children were still at home. To help ensure that your family could remain in the home and that your children could go to college, if they choose, make sure you have adequate life insurance.
Your passage through life will be filled with twists and turns, and you can’t always see what lies ahead. But you can ease your journey by preparing yourself for the unexpected.

Scott Johnson, CFP, is a financial advisor with Edward Jones, 8146 W. 111th St., Palos Hills, 974-1965. Edward Jones does not provide legal advice. This article was written by Edward Jones for use by your local Edward Jones financial advisor.