Are you prepared for the unexpected? Video

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Video transcript

Sandy

While you’re working hard to achieve your long-term financial goals, you may encounter some bumps along the way. One solution is to put strategies in place to help protect the most important things in your life.

Hello, and welcome to Edward Jones Perspective; I’m Sandy Miller. Today we’re focusing on some strategies that can help you stay on track to meet your goals for you and your family.

Joining us today is Investment Strategist Scott Thoma. Scott, what types of risks should investors prepare for?

Scott

Well, Sandy, risks usually fall into two main categories: those that all of us should prepare for regardless of where we are in life, and those that depend on your individual goals. It may be easiest to think about this second category by thinking about what’s most important to you now, and realizing these goals will change as you go through life. 

For example, if you’re a young adult, you may have a spouse or young children who depend on you to provide for them. As you grow older and approach retirement, your focus may begin to shift to protecting the financial security you’ve created for yourself and your family. And even later in life, your goal may be to pass on a financial legacy.

Sandy

I see…so let’s talk for a moment about the first type of risk. What should we all be preparing for?

Scott

It’s important to prepare for certain risks that could affect your future goals. First, unexpected expenses or events, which you can address by setting aside emergency savings, and by maintaining access to a personal line of credit if needed. For example, we generally recommend an emergency fund that can cover about 3 to 6 months’ worth of living expenses. 

Next is property loss or liability, which you can cover through homeowners, renters or auto insurance coverage, and even umbrella liability coverage.

Third is investment risk and market volatility. Although diversification cannot guarantee a profit or protect against loss in declining markets, a portfolio that’s properly diversified with quality investments can help you better weather market ups and downs.

That said, while market volatility attracts a lot of attention, your emotions, and your reaction to these declines, could be the biggest risk to your investment strategy. One way to counter this is to talk with your financial advisor about how much risk you’re willing and able to take with your investment strategy so you can be better prepared to stay on track during the inevitable short-term declines. 

And finally, you need to consider medical expenses. Since large medical expenses can pose substantial risks to your financial situation, make sure you always carry some form of health insurance while you’re working and during those years before you become eligible for Medicare.

Sandy

That's good information.  Let’s switch gears and talk about goals during early adulthood. What are some of the risks to consider while working toward those?

Scott

Earlier in life, you might not have a lot of money to spare. Your goal is typically to ensure your family has enough money to provide for their needs should something happen to you, as well as ensure your family’s long-term goals are protected even if the unexpected occurs. Insurance is designed to help address these risks by providing protection for what is too expensive to replace on your own. Your financial advisor can help you determine the right type and amount of life and disability insurance based on your specific situation. 

Sandy

So how do these risks change as you move toward retirement?

Scott

Your focus may begin to shift from providing for your family’s needs to protecting the financial security you have created – ensuring it lasts throughout your retirement. Since your assets need to provide income for as long as you live, one risk is actually living longer than you expect. Sticking to a sustainable withdrawal rate strategy, such as an initial withdrawal rate of 4%, can help you cover your expenses during early retirement while helping to ensure you still have money for your expenses well into the future.

In addition to a reasonable withdrawal rate, you may want to consider the importance of lifetime income. We believe that the foundation of your retirement income strategy should be built with lifetime income sources, such as Social Security or a pension. Since certain annuities can offer payments for life, they may help fortify this foundation by providing “income insurance” – a lifetime payment stream regardless of market performance or how long you live. However, there are important trade-offs with annuities, so together, you and your financial advisor can help determine whether annuities make sense for your retirement strategy.  

The second major risk you could face is that of needing costly long-term care. Even if you don’t anticipate needing nursing home care, you should still plan for some type of assisted living or home health care costs within your retirement strategy. You can plan to either pay these costs out of pocket or insure against them.

Sandy

Scott, what should we prepare for if our primary goal is passing on our financial legacy?

Scott

There are many moving parts to your estate strategy, and one of the biggest risks is that your documents may not reflect your strategies. Many times, people forget to update legal documents or beneficiary designations after a life event, such as a marriage or the birth of a grandchild. Work with your financial advisor and team of legal and tax professionals to make sure your documents, beneficiary designation and asset registrations are aligned with your estate goals. 

Ultimately, it’s important to understand that your financial strategy is not complete until it has some protection from the unexpected. The good news is that, while the risks may change as you go through your life, you can prepare for them. And you don’t have to do it alone. Your financial advisor understands what’s important to you and can partner with you throughout your life to help you and your family prepare for the unexpected. 

Sandy

Thanks, Scott. For more information, contact your local Edward Jones financial advisor. 

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