FINANCIAL FOCUS: What does retirement security mean to you?

by Sasha Fitzpatrick

October is National Retirement Security Month. But what does retirement security mean to you? And how can you work toward achieving it?

Here are some suggestions:

Build your resources. While you’re working, save in tax-advantaged accounts such as your IRA and 401(k) or similar employer-sponsored retirement plan. In your 401(k), contribute at least enough to earn your employer’s match, if one is offered, and increase your contributions whenever your salary goes up. Remember, especially early in your career, time is often your biggest asset. Be sure to save early, since the longer you wait, the more you’ll need to save to help reach your goals.

Look for ways to boost retirement income. When transitioning to retirement, you can take steps to align your income with your needs. For example, consider Social Security. You can start collecting it as early as 62, but your monthly payments will be much larger if you can wait until your “full” retirement age, typically between 66 and 67. (Payments will “max out” at age 70.) So, if you have sufficient income from a pension or your 401(k) and other retirement accounts, and you and your spouse are in good health with a family history of longevity, you may consider delaying taking Social Security. You also might want to explore other income-producing vehicles, such as certain annuities that are designed to provide a lifetime income stream.

Prepare for unexpected costs. During your retirement, you can anticipate some costs, such as housing and transportation, but other expenses are more irregular and can’t always be predicted, such as those connected with health care. Even with Medicare, you could easily spend a few thousand dollars a year on medical expenses, so you may want to budget for these costs as part of your emergency savings, and possibly purchase supplemental insurance. You may also want to consider the possibility of needing some type of long-term care, which is not typically covered by Medicare and can be quite expensive. The average annual cost of a private room in a nursing home is more than $100,000, and it’s about $55,000 per year for a home health aide, according to Genworth, an insurance company. To address these costs, you may want to consider some form of protection, such as long-term care insurance or life insurance with a long-term care component.

Do your estate planning. It’s hard to feel totally secure in retirement if you’re unsure of what might happen if you have an unexpected health event, become incapacitated or die earlier than expected. That’s why you’ll want to create a comprehensive estate plan – one that might include documents such as a durable power of attorney, a will and a living trust. A review of your insurance coverages and beneficiaries can also help protect your assets and ensure they are distributed the way you want. In creating your plan, you will need to work with your financial advisor and a legal professional, and possibly your tax advisor as well.

Thinking holistically about your retirement security and developing and executing a strategy aligned with your goals may help free you to enjoy one of the most rewarding times of your life.

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

Edward Jones, Member SIPC

Sasha Fitzpatrick can be contacted at EdwardJones Financial Advisor, 22 Common St., Waterville, ME 04901, or at sasha.fitzpatrick@edwardjones.com.

FINANCIAL FOCUS: Plan ahead before joining the Great Resignation

by Sasha Fitzpatrick

It’s been called the “Great Resignation” – the large number of Americans voluntarily leaving their jobs. If you plan to be part of it (ideally with another source of employment lined up), you’ll need to make the financial moves necessary to keep making progress toward your long-term goals.

Here’s some background: After a year in which the pandemic caused so many people to lose their jobs, the economy is opening back up, but the “quit rate” – the number of jobs people have voluntarily left – has been breaking records. Some economists say this high quit rate is because people are confident of getting better jobs, with higher pay and more flexibility to work at home, or because they are preparing to start their own business or join the gig economy.

If you’re thinking of joining this temporary migration from the workforce, how can you help ensure that you’ll be financially stable and can continue to make progress toward your long-term goals?

Your first move is to look clearly at your financial situation. As mentioned above, it’s best to have new employment in hand before you quit your job. Alternatively, perhaps you have a spouse or life partner who earns enough to sustain the two of you, or you’ve built up an emergency fund that gives you a cushion.

However, if your short-term income is less than you previously earned or you need to go without a paycheck for a while, could you still pay your bills? If you are strapped for cash, you might be tempted to tap into your 401(k) or other employer-sponsored retirement plan. But this move will generally result in taxes and, if you are younger than 59 ½, a 10 percent penalty as well. Because of this, and because your retirement accounts are designed to be a financial resource after you retire, think twice before dipping into these funds if you leave your current employer.

If your employer allows it, you can leave your money in the 401(k) so you’ll still be accumulating resources for retirement. You also have the option to roll those funds into an individual retirement account (IRA) or a new employer’s retirement plan.

And if you plan to work for yourself as a freelancer, consultant or business owner, you’ll still want to save toward retirement. Possible retirement plans for the self-employed include an “owner-only” 401(k), a SEP-IRA or a SIMPLE IRA, all of which may be relatively easy to establish and offer tax benefits. A financial advisor can help you find a retirement plan that’s appropriate for your needs.

Here’s something else to keep in mind – an emergency fund. As mentioned above, if you already have one, you’ll have some breathing room if you’re thinking of leaving your job and might have a temporary gap in income. But as the name suggests, an emergency fund is there to help cover unexpected costs, such as a major home repair, without forcing you to take out a loan, or cash out part of your longer-term investments. So, if you are planning to tap your emergency fund, work to restock it as soon as possible.

If you’re participating in the “Great Resignation,” it means you’re feeling positive about your future employment prospects, which is great. But you’ll want to support that optimism with a strong financial foundation.

Sasha Fitzpatrick can be contacted at EdwardJones Financial Advisor, 22 Common St., Waterville, ME 04901, or at sasha.fitzpatrick@edwardjones.com.

FINANCIAL FOCUS: Start thinking about your retirement income plan

by Sasha Fitzpatrick

If you’re getting close to retirement, you’re probably thinking about the ways your life will soon be changing. And one key transition involves your income – instead of being able to count on a regular paycheck, as you’ve done for decades, you’ll now need to put together an income stream on your own. How can you get started?

It’s helpful that you begin thinking about retirement income well before you actually retire. Many people don’t – in fact, 61 percent of retirees wish they had done better at planning for the financial aspects of their retirement, according to an Edward Jones/Age Wave study titled Retirement in the Time of Coronavirus: What a Difference a Year Makes.

Fortunately, there’s much you can do to create and manage your retirement income. Here are a few suggestions:

Consider ways to boost income. As you approach retirement, you’ll want to explore ways of potentially boosting your income. Can you afford to delay taking Social Security so your monthly checks will be bigger? Can you increase your contributions to your 401(k) or similar employer-sponsored retirement plan, including taking advantage of catch-up contributions if you’re age 50 or older? Should you consider adding products that can provide you with an income stream that can potentially last your lifetime?

Calculate your expenses. How much money will you need each year during your retirement? The answer depends somewhat on your goals. For example, if you plan to travel extensively, you may need more income than someone who stays close to home. And no matter how you plan to spend your days in retirement, you’ll need to budget for health care expenses. Many people underestimate what they’ll need, but these costs can easily add up to several thousand dollars a year, even with Medicare.

Review your investment mix. It’s always a good idea to review your investment mix at least once a year to ensure it’s still appropriate for your needs. But it’s especially important to analyze your investments in the years immediately preceding your retirement. At this point, you may need to adjust the mix to lower the risk level. However, you probably won’t want to sell all your growth-oriented investments and replace them with more conservative ones – even during retirement, you’ll likely need some growth potential in your portfolio to help you stay ahead of inflation.

Create a sustainable withdrawal rate. Once you’re retired, you will likely need to start taking money from your IRA and 401(k) or similar plan. But it’s important not to take too much out in your early years as a retiree, since you don’t want to risk outliving your income. A financial professional can help you create a sustainable withdrawal rate based on your age, level of assets, family situation and other factors.

By planning ahead, and making the right moves, you can boost your confidence in your ability to maintain enough income to last throughout your retirement. And with a sense of financial security, you’ll be freer to enjoy an active lifestyle during your years as a retiree.

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

Edward Jones, Member SIPC.

FINANCIAL FOCUS – 529 Plan: not just for college

by Sasha Fitzpatrick

If you’ve heard of 529 plans, you might think they can only be used to help pay for college. And you wouldn’t be alone: Less than one-third of adults properly identified that a 529 plan can be used for more than just higher education, according to a survey by Morning Consult and Edward Jones. But what are these other expenses?

Before we get to them, let’s review the main benefits of 529 plans. Contribution limits are high and earnings can grow tax-free if withdrawals are used for qualified education expenses such as tuition and room and board. (Withdrawals for nonqualified distributions are subject to taxes and a 10 percent penalty on the earnings portion.) Plus, as the account owner, you maintain control of the plan, so you can switch beneficiaries to another qualified family member, if necessary.

Now, let’s consider the other uses of 529 plans, which have been made possible by various pieces of legislation over the past few years:

Student loan repayments – The average amount of student loan debt per borrower is well over $32,000, according to the Federal Reserve. So, many people welcomed the news that 529 plans could be used to repay student loans. There’s an aggregate lifetime limit of $10,000 in qualified student loan repayments per 529 plan beneficiary, plus $10,000 for each of the beneficiary’s siblings. Being able to use 529 plans to repay student loans gives you some flexibility if your family members have excess balances in their accounts.

K-12 expenses – A 529 plan can now be used to pay up to $10,000 per year in tuition expenses at private, public and religious elementary and secondary schools. This amount is per student, not per account. However, not all states allow 529 plans to be used for K-12 expenses – or to be technical, some states consider K-12 tuition to be a nonqualified 529 plan expense, which means the earnings portion of a 529 plan is subject to state income taxes and possibly a “recapture” of other state income tax breaks connected with 529 plan withdrawals. So, make sure you understand your state’s rules on K-12 expenses before taking money out of your 529 plan.

Apprenticeships – Not every child wants or needs to attend a college or university. And now, 529 funds can be used to pay for apprenticeship programs registered with the U.S. Department of Labor. These types of programs, which combine on-the-job training with classroom instruction, are offered at community colleges and trade schools. Once students complete their apprenticeships, they often go on to well-paying careers in a variety of fields. And since these types of programs are typically far less expensive than a four-year college degree, a 529 plan can have a particularly long reach.

The tax treatment of 529 plans for all these expenses can vary from state to state, so, if you move to another state after you’ve established your plan, you’ll want to know the rules. Even if you don’t move, it’s still a good idea to consult with your tax advisor about how 529 plan withdrawals will be treated.

Nonetheless, a 529 plan could be valuable to you in many ways. Consider how you might want to put it to work for you and your family.

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

Submitted by Sasha Fitzpatrick

FINANCIAL FOCUS: The right emotions can be useful in investing

by Sasha Fitzpatrick

You may have heard that it’s important to take the emotions out of investing. But is this true for all emotions?

Certainly, some emotions can potentially harm your investment success. Consider fear. If the financial markets are going through a down period – which is actually a normal part of the investment landscape – you might be so afraid of sustaining losses that you sell even the investments that have good prospects and are suitable for your needs.

Greed is another negative emotion. When the financial markets are rising, you might be so motivated to “cash in” on some big gains that you will keep purchasing investments that might already be overpriced – and since these investments are already expensive, your dollars will buy fewer shares.
In short, the combination of fear and greed could cause you trouble.

But other emotions may prove useful. For example, if you can channel the joy you’ll feel upon achieving your investment goals, you may be more motivated to stay on track toward achieving them. To illustrate: You may want to see your children graduate from college someday. Can you visualize them walking across the stage, diplomas in hand? If so, to help realize this goal, you might find yourself ready and willing to contribute to a college savings vehicle, such as a 529 plan. Or consider your own retirement: Can you see yourself traveling or pursuing your hobbies or taking part in whatever activities you’ve envisioned for your retirement lifestyle? If you can keep this happy picture in mind, you may find it easier to maintain the discipline needed to consistently invest in your IRA, 401(k) or other investment accounts.

Another motivating force is the most powerful emotion of all – love. If you have loved ones who depend on you, such as a spouse and children, you need to protect their future. One key element of this protection is the life insurance necessary to take care of your family’s needs – housing, education and so on – should something happen to you. Your employer may offer group life insurance coverage, but it might not be sufficient, so you may want to supplement it with your own policy.

Furthermore, you may need to protect your loved ones from another threat – your own vulnerability to the need for long-term care. Someone turning age 65 today has almost a 70 percent chance of eventually needing some type of long-term care, according to the U.S. Department of Health and Human Services. This type of care, such as an extended nursing home stay or the help of a home health aide, is extremely expensive, and, for the most part, is outside the reach of Medicare. So, to pay for long-term care, you might have to drain a good part of your resources – or depend on your grown children for financial help.

To keep your financial independence and avoid possibly burdening your family, you may want to consult with a financial professional who can recommend a strategy and appropriate solutions to cover long-term care costs.

By drawing on positive emotions, you can empower yourself to make the right financial moves throughout your life.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, Member SIPC. Sasha Fitzpatrick can be contacted at EdwardJones Financial Advisor, 22 Common St., Waterville, ME 04901, or at sasha.fitzpatrick@edwardjones.com.

Submitted by Sasha Fitzpatrick
Edward Jones Financial Advisor

FINANCIAL FOCUS: Declare your financial freedom; how to achieve it

by Sasha Fitzpatrick

Submitted by Sasha Fitzpatrick, EdwardJones Financial Advisor

We just celebrated Independence Day. And as we make progress in moving past the COVID-19 pandemic, more of us enjoyed Fourth of July activities. However you observe the holiday, it’s important to recognize all the liberties we enjoy in this country. But you may still need to work at one particular type of freedom – and that’s financial freedom. How can you achieve it?

There’s no one instant solution. But you can work toward financial independence by addressing these areas:

Retirement savings – Approximately 45 percent of Americans think the ideal retirement involves “enjoying my well-earned freedom,” according to the March 2021 Edward Jones/Age Wave Four Pillars of the New Retirement study. But when you’re retired, the risk to this freedom is obvious – the paychecks have stopped but the bills haven’t. Furthermore, you could spend two or three decades in retirement. That’s why it’s so important to contribute as much as you can afford to your tax-advantaged retirement accounts, such as your IRA and your 401(k) or another employer-sponsored plan. At a minimum, put in enough to earn your employer’s matching contribution, if one is offered. Whenever your salary goes up, try to increase the annual amount you put in your 401(k) or similar plan. And if appropriate, make sure you have a reasonable percentage of growth-oriented investments within your 401(k) and IRA. Most people don’t “max out” on their IRA and 401(k) each year, but, if you can consistently afford to do so, and you still have money you could invest, you may want to explore other retirement savings vehicles.

Illness or injury – If you were to become seriously ill or sustain a significant injury and you couldn’t work for an extended period, the loss of income could jeopardize your ability to achieve financial independence. Your employer may offer disability insurance as an employee benefit, but this coverage is typically quite limited, both in duration and in the amount of income being replaced. Consequently, you may want to consider purchasing private disability insurance. Keep in mind that this coverage, also, will have an end date and it probably won’t replace all the income lost while you’re out of work, but it will likely be more expansive and generous than the plan provided by your employer.

Long-term care – Individuals turning 65 have about a 70 percent chance of eventually needing some type of long-term care, such as a nursing home stay or the assistance of a home health aide, according to the U.S. Department of Health and Human Services. And these services are quite expensive – the average annual cost for a private room in a nursing home is more than $100,000, according to Genworth, an insurance company. Medicare typically covers only a small part of these expenses, so, to avoid depleting your savings and investments (and possibly subjecting your grown children to a financial burden), you may want to consider long-term care insurance or life insurance with a long-term care component. A financial advisor can help you choose a plan that’s appropriate for your needs.

By addressing these areas, you can go a long way toward attaining your financial independence. It will be a long-term pursuit, but the end goal is worth it.

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

Edward Jones, Member SIPC.

Sasha Fitzpatrick can be contacted at EdwardJones Financial Advisor, 22 Common St., Waterville, ME 04901, or at sasha.fitzpatrick@edwardjones.com.