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Take steps to protect your family business

Scott-Johnson---HeadThere’s nothing more important in the world to you than your family. However, your family-owned business probably comes in second. So when it comes to protecting both your family and your business, you need to carefully consider your moves.
As you know, you face plenty of challenges to keep your business running smoothly — but it can be even more difficult to pass the family business on to your children or other relatives. In fact, according to the Small Business Administration, only 33% of family-owned businesses survive the transition from first generation ownership to the next generation.

Why is it so hard to keep a family business intact? Sometimes, it’s because no one in the family has an interest in running the business — but many times, family businesses disintegrate because of the lack of a succession plan.
To create a succession plan, your first step — and possibly the most important one — is to collect the thoughts and preferences of family members on their future involvement with your business. It’s essential that you know who wants to really do the day-to-day work and who wants a lesser connection. During these conversations, you’ll also want to discuss other key business-succession issues, such as the retirement goals and cash flow needs of retiring family owners and the personal and financial goals of the next generation of management.
Once you have this knowledge, you can begin to study the various business succession arrangements available to you.

For example, you could consider a family limited partnership. Under this arrangement, you, as general partner, would maintain control over the day-to-day operation of your business, but, over time, you would give limited partnership shares to your family members. Eventually, you would also relinquish control of the business to whoever is going to run it.
Alternatively, you could establish a “buy-sell” agreement, which lets you keep control of your business for as long as you like — for the rest of your life, if you choose. But during your ownership, you can name the buyer for your business — such as one of your children — and establish a sale price. Your child could then purchase a life insurance policy on your life and eventually use the proceeds to buy the business, according to the terms established in the buy-sell agreement.
Keep in mind that we’ve just skimmed the surface of these two business succession techniques. They can be complex, so before choosing either one — or any other arrangement involving the transfer of your business — you will certainly need to consult with your legal, tax and financial professionals. It’s important that you fully understand the tax implications of any succession plan as well as the financial effects of a plan on all your family members.
In any case, once you’ve chosen a succession plan, you’ll need to work with your legal advisor to put it in writing and communicate it clearly to all family members. Surprises are welcome in many parts of life — but not when it comes to transferring a family business.
You want to leave your family a legacy. And if that legacy is the family business, do whatever it takes to pass it on in a manner that benefits everyone involved. This will take time and planning — but it can be well worth the effort.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. 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.

Financial spring cleaning can brighten your investment picture

Scott-Johnson---HeadThe days are getting longer and warmer — a sure indication of the arrival of spring. Another sign of the season may be the urge you get to do some spring cleaning. But you might not have realized that some of the same spring-cleaning techniques that can be used on your home can also apply to your investments and your overall financial strategy.
Here are a few ideas to consider:
• Get rid of “clutter.” As you do your spring cleaning, you may well find some clutter — a bunch of items you no longer need. As an investor, you might look at your portfolio and also find “clutter” in the form of investments that are no longer appropriate for your objectives. For example, perhaps some of them are virtual duplicates of other investments you own, thereby diminishing your potential for diversification. Or maybe some investments are now too risky for your needs. In any case, you may be better off rebalancing your portfolio.
• Get organized. As you clean your home, you might find ways to organize your belongings and furniture more efficiently. And you may also be able to organize your investments more effectively. One possibility: Consider consolidating your investment accounts with one provider. If you have an IRA here, another one there and some other investments scattered about, you may be paying more in fees and commissions than is necessary. By consolidating these investments, you might save money and paperwork — and more importantly, you may find it easier, with all your investments under one “roof,” to follow a single, unified investment strategy.
• Seal “cracks.” Over time, the grout between your kitchen or bathroom tiles can crack, so you’ll need to re-grout to protect your flooring. And you may find that, in looking at your overall financial strategy, your “protection” component — primarily in the form of insurance — might have developed some “cracks” or “chips.” Specifically, has your life insurance kept up with changes in your family situation? Events such as marriage, remarriage or the arrival of a new child can all trigger the need to review your life insurance. And you’ll also want to make sure you have adequate disability insurance. Consult with a financial professional for information on appropriate protection vehicles.
• Do some “dusting.” As part of your spring cleaning, you may need to dust furniture, shelves and other surfaces in your home. And if you’ve been investing for a long time, you may need to metaphorically “dust off” your financial strategy to “freshen it up” to reflect changes in your life. To cite one possibility, as you get close to retirement, you may need to shift some — but certainly not all — of your growth-oriented investments into income-producing ones. But you may also need to review and revise your financial strategy at other points in your life, such as when you begin saving for your children’s college education.
Just as spring cleaning can bring more light into your home, sprucing up your investment picture can help you brighten your financial outlook. And these improvements can help you in all the seasons of your life.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
  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.

How will Social Security fit into your retirement income strategy?

Scott-Johnson---HeadHave you given much thought to collecting Social Security? The answer probably depends on how old you are — but whatever your age, you’ll want to consider the best way of incorporating Social Security benefits into your retirement income strategy.
Of course, if you have several decades to go until you retire, you might be wondering if Social Security will even be there for you at all. The basic issue is that the Social Security system is experiencing a sharply declining worker-to-beneficiary ratio. In plain English, this means that fewer workers are contributing to Social Security while the huge baby boom generation is retiring and taking money out. Still, Social Security has enough money to pay full retirement benefits to every eligible American until 2038, according to the Congressional Budget Office. After that point, benefits would have to be reduced unless changes are made to the Social Security system.
And several changes have indeed been proposed. Given that we do have nearly 25 years until benefit cuts may need to be made, it seems reasonable that some type of solution could be reached to put Social Security back on solid ground.
In any case, when thinking about your retirement income, you need to focus on those things that you can control — such as when to start taking Social Security and how you can supplement your Social Security benefits.
Depending on when you were born, your “full” retirement age, as far as collecting Social Security benefits, is likely either 66 or 67. You can start getting your checks as early as 62, but if you do, your monthly payments could be reduced by as much as 30% — and this reduction is permanent. Consequently, if you can support your lifestyle from other sources of income — such as earnings from employment and withdrawals from your IRA and 401(k) — you may want to postpone taking Social Security until you reach your full retirement age. In fact, you can get even bigger monthly checks if you delay taking your benefits beyond your full retirement age, although your payments will “max out” once you reach 70. Keep in mind, though, that other factors, such as your anticipated longevity, should also enter into your calculations in considering when to take Social Security.
As mentioned above, your retirement income may also include withdrawals from retirement accounts, such as an IRA and a 401(k), along with other investments, such as a fixed annuity. And these other accounts are quite important, because Social Security provides, on average, only about 40% of retirement income for the average 65-year-old today. Consequently, in the years and decades before you retire, contribute as much as you can possibly afford to these other accounts. Given the advances in medical care and the greater awareness of healthy lifestyles, people are living longer than ever — which means you could spend two, or even three, decades in retirement. To enjoy those years fully, you’ll need adequate income.
By planning ahead, you can determine how best to fit Social Security into your retirement income strategy. Every move you make to help “secure” your retirement can pay off for you in the long run.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.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.

Saving is good … but it’s not investing

Scott-Johnson---HeadIt’s a good thing to have some savings. When you put the money in a low-risk account, you can be pretty sure it will be readily available when you need it. Nonetheless, “saving” is not “investing” — and knowing the difference could pay off for you far into the future.
Think about it this way: Saving is for today, while investing is for tomorrow.
You need your savings to pay for your daily expenses, such as groceries, and your monthly bills — mortgage, utilities, and so on. In fact, you might even want your savings to include an emergency fund containing six to 12 months’ worth of living expenses to pay for unexpected costs, such as a new furnace or a major car repair.
These are all “here and now” expenses — and you could use your savings to pay for them. But in thinking of your long-term goals, such as college for your children and a comfortable retirement for yourself, most individuals typically can’t simply rely on their savings — they’ll need to invest. Why? Because, quite simply, investments can grow — and you will need this growth potential to help achieve your objectives.
To illustrate the difference between saving and investing, let’s do a quick comparison. Suppose you put $200 per month into a savings account that paid hypothetical 3% interest (which is actually higher than the rates typically being paid today). After 30 years, you would have accumulated about $106,000, assuming you were in the 25% federal tax bracket. Now, suppose you put that same $200 per month in a tax-deferred investment that hypothetically earned 7% a year. At the end of 30 years, you would end up with about $243,000. (Keep in mind that you would have to pay taxes on withdrawals. Hypotheticals do not include any transaction costs or fees.)
This enormous disparity between the amounts accumulated in the two accounts clearly shows the difference between “saving” and “investing.” Still, you might be thinking that investing is risky, while savings accounts carry much less risk. And it is certainly true that investing does involve risks — investments can lose value, and there’s no guarantee that losses will be recovered.
Nonetheless, if you put all your money in savings, you’re actually incurring an even bigger risk — the risk of not achieving your financial goals. In fact, a low-rate savings account might not even keep up with inflation, which means that, over time, you will lose purchasing power.
Ultimately, the question isn’t whether you should save or invest — you need to do both. But you do need to decide how much of your financial resources to devote toward savings and how much toward investments. By paying close attention to your cash flow, you should be able to get a good idea of the best savings and investment mix for your particular situation. For example, if you find yourself constantly dipping into your long-term investments to pay for short-term needs, you probably don’t have enough money in savings. On the other hand, if you consistently find yourself with large sums in your savings account even after you’ve paid all your bills, you might be “sitting” on too much cash — which means you should consider moving some of this money into investments with growth potential.
Saving and investing — that’s a winning combination.

  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.

Holding investments for the long term can be less taxing

Scott-Johnson---HeadAs we get closer to April 15, the tax-filing deadline, you may be wondering about the effects of some of your actions on the amount of taxes you pay. Of course, you don’t have total command of some key tax-related components, such as your earned income. But one area in which you do have a degree of control is your investment-related taxes. And since 2013 has been a pretty good year for the financial markets, you may have some sizable gains. If you decide to sell some of your investments to “lock in” those gains, what would be the tax consequences?
Essentially, the answer depends on two variables: your tax bracket and how long you’ve held the investments.

Our tax code rewards those investors who hold their investments for longer time periods. Consequently, short-term capital gains, earned on investments held for less than one year before being sold for a profit, are taxed at an individual’s ordinary income tax rate, which, in 2013, can be as high as 39.6%. However, long-term capital gains, earned on investments held one year or longer, are taxed at just 15% for most taxpayers and 20% for those in the 39.6% bracket. (At this tax bracket, a 3.8% Medicare contribution tax may also apply to long-term gains, so the top capital gains rate would be 23.8%.) You’ll need to check with your tax advisor for more details.
From a tax standpoint, you are likely to be better off by keeping your profitable investments at least one year before selling them. But are there also other reasons to hold investments for the long term?
In a word, yes. For one thing, if you are constantly buying and selling investments, you won’t just incur taxes — you’ll also rack up commissions and fees. And these costs can eat into your investments’ real rate of return.

Also, if you are always buying and selling, you may be doing so for the wrong reasons. You might be chasing after “hot” investments, even though by the time you buy them, they may already be cooling off — and, in any case, they may not even be right for your needs. Or, you might decide you need to “shake things up” in your portfolio because you haven’t liked what you’ve seen on your investment statements for a longer period of time. But if the overall market is down, it tends to drag everything down with it — even quality vehicles that still have good prospects.

But most importantly, if you are always buying and selling, you will find it difficult to follow a unified, long-term investment strategy — one that’s based on your goals, risk tolerance and time horizon. When you follow such a strategy, you may indeed buy and sell investments, but only at those times when it’s really necessary, such as when you need to further diversify your holdings, a fundamental change in the company has occurred or when the suitability rating of the investment has changed. While diversification can’t guarantee profits or protect against loss, it can help reduce the impact of volatility on your portfolio.
If you want to cut down on your capital gains taxes, holding quality investments for the long term makes sense. And for an investment strategy, a “buy and hold” approach can better position you long after tax season has ended.

  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.