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.

Make the right moves to leave a legacy to grandchildren

Scott-Johnson---Head  On Monday, we observe National Grandparents Day.
  If you have grandchildren, they will hopefully mark this occasion by sending a card, making a call or, best of all, paying a visit. But however your grandchildren express their feelings for you, you undoubtedly have a very big place in your heart for them. In fact, you may well be planning on including your grandchildren in your estate plan. If that’s the case, you’ll want to do the best you can to preserve the size of your estate — without sacrificing the ability to enjoy life during your retirement years.
  Here are a few suggestions to help you achieve this balancing act:

  • Expect market volatility — and don’t overreact. If you’ve been investing for a while, you know that volatility in the financial markets is normal. In fact, it’s not unusual for the market to drop 10%, or even more, in a year. Try not to overreact to this type of volatility. For example, don’t immediately sell investments just because they’ve had a down year — they may well bounce back the next year, especially if their fundamentals are still strong.
  • Diversify. It’s always a good idea to diversify across a range of investment vehicles — stocks, bonds, government securities, certificates of deposit (CDs) and so on. While diversification can’t guarantee a profit or protect against loss, it can help reduce the effects of volatility on your portfolio.
  • Maintain a cash cushion. During your retirement years, you may face unexpected expenses, just as you did when you were working. To help pay for these expenses without being forced to dip into your long-term investments, try to maintain a “cash cushion” that’s sufficient to cover six to 12 months’ worth of living expenses.
  • Limit withdrawals from your investments. To keep your investment portfolio intact for as long as possible, set limits on your annual withdrawals. Your withdrawal rate should be based on a variety of factors — age at retirement, other sources of income, lifestyle choices, etc. A financial advisor can help you calculate a withdrawal rate that makes sense for your situation.

  • Delay your generosity. It can be tempting to provide for your grandchildren — and perhaps even your grown children — as soon as you can. But you need to balance this impulse with the financial challenges that two or three decades of retirement can bring. It’s not being “selfish” to take care of yourself first — in fact, by doing everything possible to remain financially independent, you will be helping your family in the long run.

  • Don’t delay creating your estate plan. If you are committed to leaving a generous legacy for your grandchildren, you need a comprehensive estate plan. And it’s best to create this plan as soon as possible, while you are mentally and physically healthy. You may never become incapacitated, of course, but the future is not ours to see. In addition to starting early with your estate plan, you’ll need to assemble the right team, including your financial advisor, legal professional and tax expert.
  You might enjoy receiving attention on National Grandparents Day. But you’ll get even greater pleasure out of knowing that you’re maximizing your efforts to leave the type of legacy you want for your grandchildren — while still enjoying the retirement lifestyle you desire.

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.

Avoid expensive errors when paying for college

Scott-Johnson---Head It’s just about back-to-school time again.
  If you have young children, you might be hustling them to the store for backpacks and binders. But if you fast-forward a few years, you can envision driving your kids a little farther — to their college dorms. And when that day comes, you’ll want to be financially prepared. So you’ll want to avoid making costly mistakes when preparing for, and paying, those big bills. Here are some of the most common of these errors:
  • Not saving enough — Only half of all families with children under 18 save any money for college, according to a recent study by Sallie Mae, the country’s largest originator of federally insured student loans. You might find it easier to save for college if you automatically move a set amount each month from your checking or savings account to a college savings vehicle.
  • Not considering vehicles with growth potential — The same Sallie Mae study found that more parents use a general savings account than any other method of saving for college. But since most savings accounts these days pay only a minimal rate of return, you will have trouble getting the growth potential you need to achieve your college savings goals. Consider working toward your college savings goals by investing in a vehicle specifically designed for college, such as a 529 plan or a Coverdell plan. There are differences between these plans, such as contribution limits and tax treatments, but both allow you to invest for growth potential. As with any investment account, there are risks involved, including market risk.
  • Stopping your savings once your children are in college — Unless your children plan to take an awful lot of credits, they’re not going to finish college in just one year. Consequently, you’ll want to keep investing in your plan or other college savings vehicle while your children are in school.
  • Taking out 401(k) loans — Your employer may allow you to take out a loan against your 401(k) to help pay for college. But this may not be a good idea for two reasons: First, when you remove money from your 401(k) — even if you plan on eventually paying it back — you will slow the potential accumulation in your account, thereby depriving yourself of resources you will eventually need for retirement. Second, should you leave the company, you might have to repay the loan within a limited number of days.
  • Not using available tax credits — Depending on your income, you might qualify for the American Opportunity tax credit, which is worth up to $2,500, provided you spend at least $4,000 on college expenses. Check with your tax professional to see if you qualify for this credit and how to most effectively incorporate it. And be careful you don’t waste the credit, because you may not be able to use it and your plan distributions at the same time.
  Paying for college can be challenging — but if you can avoid making the above mistakes, you’ve got a better chance of getting your kids through school without derailing the progress you’d like to make toward your other financial goals.

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.

Your legacy is in your own hands

Scott-Johnson---HeadUnless you keep close track of obscure holidays and observances, you probably didn’t know that August is “What Will Be Your Legacy? Month.” Still, you might want to use this particular month as a useful reminder to take action on what could be one of your most important financial goals: leaving a meaningful legacy.
A legacy isn’t simply a document or a bunch of numbers — it’s what you will be remembered for, and what you have left behind that will be remembered. It’s essentially your chance to contribute positively to the future, whether that means providing financial resources for the next generation, helping those charitable organizations whose work you support, or a combination of both.
To create your legacy, you’ll need to do some planning. And you can start by asking yourself a couple of key questions:
What are your goals? When you think about leaving a legacy, what comes to mind? First and foremost, you may well want to leave enough money to help your own grown children meet their financial goals. After that, you probably have other things you’d like to accomplish. Perhaps you want to provide resources for your grandchildren to attend college? Or set up a scholarship at your own alma mater? Give financial support to a cultural, social, religious or scientific group? By thinking about your goals and putting them on paper, even in an informal sense, you’ll be taking the important first step in leaving the legacy you desire.
How can you turn your goals into reality? If you don’t take some concrete steps, your legacy just won’t materialize. And the most important step you need to take is to create a comprehensive estate plan. Your estate plan can be quite involved, because it may involve several legal documents, such as a will, living trust, health care power of attorney, and so on. In creating these materials, you will need to work with your legal and tax advisors because estate planning is definitely not a “do-it-yourself” endeavor.
You probably shouldn’t wait until you are deep into retirement to take action on your estate plan because developing the necessary documents and arrangements can take a fair amount of time — and you’ll want to make these preparations when you’re in good mental and physical health. Also, the longer you wait to set up your estate plan, the less likely it will be that you’ve communicated your wishes clearly to your family members, who may end up unsure about what you want and what their roles are in carrying out your plans —and that’s an outcome you certainly don’t want to see.
In fact, clear communications are essential to developing a successful estate plan. You should not only tell your family members — and anyone else affected by your estate plan — what you are thinking of doing but also inform them about the professionals with whom you are working and the locations in which you are storing any vital documents, such as your will.
By identifying your goals, working with the appropriate professionals to create an effective estate plan, and communicating regularly with your family members and other “key players” in your life, you can go a long way toward leaving the legacy you desire.
So, do what it takes to launch that legacy.

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.

Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.

Smart use of variables can lead to right answers for retirement

Scott-Johnson---HeadIf you think back to your math classes in high school or college, you may remember that many of the problems involved the use of variables. Changing these variables around in any fashion would change the outcome of the problem. Similar situations occur in life all the time. To illustrate: If you look at the need to manage your retirement income so that you can’t outlive it as a “problem” to be solved, you will need to adjust some variables to arrive at the solution you seek. That’s why it’s so important you be aware of the key variables involved in your retirement income planning.
What are some of these variables? Consider the following:
• Your investment mix — You might think that once you reach retirement, you can invest solely in income-producing vehicles, but you can’t forget about inflation. Even a low rate of inflation, such as we’ve had for a number of years, can seriously erode your purchasing power over time — which is why you need to consider owning at least some investments that provide growth potential. Of course, you can change your investment mix at any time: For example, you might want to shift to a greater percentage of income-oriented investments as you move deeper into retirement.
• Your withdrawal rate — You’ll need to calculate how much you can afford to withdraw from your investment portfolio each year without depleting it prematurely. Your annual withdrawal rate will depend on a few different factors — such as your projected longevity, your investment mix and your other sources of income — but you’ll want to be careful not to take out too much too soon. As was the case with your investment mix, you have the flexibility to adjust your withdrawal rate during your retirement years.
• Your Social Security — You can start collecting Social Security benefits as early as age 62, but your benefits will be permanently reduced by up to 30% unless you wait until your Full Retirement Age (FRA), which is likely 66 or 67. However, your monthly checks can increase if you delay taking your benefits beyond your Full Retirement Age, up to age 70. If you come from a particularly long-living family, and you have sufficient income apart from Social Security, you might want to delay your payments to get the larger benefit amount. Once again, you have a choice to make.
• Your earned income — Just because you’ve retired from one career, it doesn’t mean you’ll never again earn some income. Many retirees take part-time jobs, do some consulting or even open a small business. Whether you feel that you need to work, or you just want to work, the money you earn from employment can be an important component of your overall retirement income.
As you can see, all these variables involve choices on your part. And how you choose to exercise each variable will affect all the other variables. Consequently, as you manage and monitor your retirement income, you’ll need to make many important decisions. Still, this doesn’t have to be a scary prospect — because the very fact that you have choices means you also have a great deal of control over your situation.
So, study your choices carefully, as you work toward achieving the income you need to enjoy the retirement you want.

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.