Financial Focus

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Have financial questions? Every week, TheBayNet will spotlight a Financial Focus article on an important topic provided by Edward Jones Financial Advisor Wilman Wai Man Cheung.

Today, she looks at how you can protect your family from the expense of long-term care. 

Protect Your Family from Long-term Care Costs

Like everyone, you want to remain physically and financially independent throughout your life. But if you lose some of this freedom, the last thing you’d want is to become a burden on your family. How can you keep this from happening?

First of all, you need to be aware of the risk. Someone turning 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. Of course, this doesn’t necessarily mean that you face that 70 percent likelihood. In reality, you have either a zero percent chance of requiring long-term care (you’ll never need it) or a 100 percent chance (you’ll definitely need it).

Nonetheless, if you think you’ve got that zero percent chance, you’re taking a gamble – and it could be a big one, because long-term care is expensive. The median annual cost for a private room in a nursing home is over $102,000, according to Genworth, an insurance company. Other long-term care services, such as those provided by a home health care aide, also don’t come cheaply.

Furthermore, you can’t count on Medicare paying all these costs – in fact, it would probably only cover a small portion of a nursing home stay and provide limited assistance for home health care. So, if you were financially unprepared for the expense of long-term care, the burden might fall on your loved ones. This could be a big financial challenge, in two ways.

First, if a family member had to become your caregiver, this individual might have to abandon a career, or at least substantially reduce their working hours. Not only would this result in a loss of income, but it could also lower the amounts that could be contributed to a 401(k) or similar employer-sponsored retirement plan.

Second, if your family members couldn’t leave their jobs or cut back on their hours, or they were simply unable to provide the type of long-term care you need, they might be forced to pay for a nursing home stay or home health care worker out of pocket.
To avoid these outcomes, you have a couple of options:

  • Self-insure – You could conceivably “self-insure” against the costs of long-term care by devoting a portion of your investment portfolio specifically to this purpose. However, if at some point you require admission to a nursing home, it may require a significant commitment of your resources.
  • Purchase protection – Over the past decade or so, there’s been an increase in the types of long-term care protection vehicles available. These instruments vary widely in cost and in what they cover, but by choosing a protection option, you may greatly lower the financial risk you might face. By consulting with a financial professional, you should be able to find an arrangement that’s appropriate for your situation.

Preserving your financial independence and helping protect that of your family should be a key financial goal. And you can make progress toward accomplishing this by recognizing the potential cost of long-term care and taking steps to deal with it.

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Avoid Financial Mistakes During Retirement

When you retire, you’ve learned a lot about all sorts of things, helping you avoid some of the mistakes you made earlier in life. However, you may still be susceptible to financial missteps specifically related to your retirement years. How can you dodge these errors?

Consider these suggestions:

Manage your withdrawal rate carefully.

You will likely need to tap into your retirement accounts – your IRA and 401(k) or similar employer-sponsored plan. But you should establish an annual withdrawal rate that’s appropriate for your situation. By withdrawing too much each year, especially in the early years of your retirement, you risk outliving your resources. You may want to consult with a financial professional to determine the withdrawal amount that’s right for you. (Keep in mind, though, that once you turn 72, you will be required to take out at least a certain amount each year – based on your age and account balance – from your traditional IRA and 401(k) or similar plan.)

Don’t underestimate health care costs.

Once you turn 65, you will be eligible for Medicare, but you may still need a Medicare supplement plan and will probably also incur other expenses. In fact, A healthy 65-year-old couple who retired in 2019 will need nearly $390,000 over their remaining years just to pay for health care, according to HealthView Services, which produces health-care cost projection software. Other estimates show different amounts, but they all amount to hundreds of thousands of dollars. So, when calculating your expenses during your retirement years, reserve a big space for health care.

Don’t take Social Security too early

You can start receiving monthly Social Security checks when you reach age 62, but your payments will generally be significantly larger if you wait until your “full” retirement age, which will probably be between 66 and 67. (The size of your payments will “max out” at age 70.) Of course, if you need the money at 62, you may have to take it, but if you believe you have longevity working in your favor, and you can afford to wait, you may be better off by delaying Social Security as long as possible.)

Don’t invest too conservatively

Once you’re retired, you might think that you should take as few chances as possible with your investments – after all, you simply have less time for them to bounce back from a downturn than you did during your working years. Nonetheless, it's important to own a reasonable percentage of growth-oriented investments to help keep you ahead of inflation. Even at a low rate, which we’ve experience recently, inflation can erode your purchasing power over time.

Don’t be more generous than you can afford.

If you have grown children who need financial help, or grandchildren heading to college someday, you’d no doubt like to do whatever you can to provide assistance. However, the hard truth is they simply have more time than you do to find workable financial solutions, whereas if you deplete your funds through your generosity, you could put yourself in a precarious position. So, be as giving as you can afford – but don’t go beyond that. By preserving your financial independence, you’ll end up benefiting your family, as well.

Retirement can be a wonderful time of your life – and you may enjoy it more by doing what you can to avoid costly financial mistakes.

Keep reading for more tips on getting the most out of your 401K.


Get The Most From Your 401K

You won’t see any greeting cards celebrating it, and it’s not likely to be on your calendar, but in just a few weeks, National 401(k) Day will be observed.

And this type of recognition may be warranted, too, because 401(k) plans have become key building blocks for a big part of people’s lives – a comfortable retirement. Are you making the most of your 401(k)?

Of course, during the past few months, you may have had mixed feelings about your 401(k). After all, at the beginning of the coronavirus, when the financial markets tumbled, the value of your account probably fell significantly, although it has likely regained some ground since the initial drop.

Nonetheless, the recent market volatility and its short-term effects on your 401(k) should not unduly influence your decisions about this important retirement account. After all, a 401(k) is truly a long-term vehicle, in every sense – you contribute to it for decades while you’re working, and you can draw on it, along with other sources of income, for decades during your retirement. Consequently, you’ll want to consistently review your account to ensure it is working hard for you.

Here are a few suggestions:

Get the match. At a minimum, put enough into your 401(k) to earn your employer’s matching contribution, if one is offered. While employers can set their own rules, a typical match is 50% of what you put in, up to 6% of your salary. So, if you don’t contribute the amount needed to earn the match, you are essentially “leaving money on the table.” (Be aware, though, that some employers have temporarily suspended matching contributions in response to the economic slowdown during the pandemic.)

Give yourself regular “raises.” Every time your salary goes up, increase your annual contributions. Most people typically don’t come anywhere near hitting the maximum annual 401(k) contribution limit (which, in 2020, is $19,500, or $26,000 for those 50 or older), and you might not, either, but try to put in as much as you can afford. Not only will you be building tax-deferred resources for retirement, but you’ll be giving yourself a big tax break, because the more you contribute each year, the lower your taxable income (unless you have a Roth 401(k), in which case your contributions aren’t deductible, but your earnings can grow tax-free).

Invest for growth. Because your 401(k) is designed to help fund your retirement, which could last 20 years or more, you’ll want to build the biggest account possible. That means you’ll need to include investments designed to provide growth within your 401(k), subject to your personal risk tolerance.

Be careful about loans. You can take out loans from your 401(k), but it’s not always a good move. You’ll have to pay yourself back, and if you leave your job, either voluntarily or involuntarily, the repayment may be due at an inconvenient time. (However, as part of the CARES economic stimulus act, many 401(k) loan repayments are being suspended for up to one year.) Furthermore, by taking out money from your account, even temporarily, you can slow its overall growth potential. So, you may want to look for other sources of income before tapping into your 401(k).

National 401(k) Day is just that – a day. But by taking the appropriate steps, you can help ensure your own 401(k) gives you many years’ worth of benefits.


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How Can You Prepare for the “New Retirement”?

A generation or so ago, people didn’t just retire from work – many of them also withdrew from a whole range of social and communal activities. But now, it’s different: The large Baby Boom cohort, and no doubt future ones, are insisting on an active lifestyle and continued involvement in their communities and world.  So, what should you know about this “new retirement”? And how can you prepare for it?

For starters, consider what it means to be a retiree today. The 2020 Edward Jones/Age Wave Four Pillars of the New Retirement study has identified these four interrelated, key ingredients, along with the connected statistics, for living well in the new retirement:

• Health – While physical health may decline with age, emotional intelligence – the ability to use emotions in positive ways –  actually improves, according to a well-known study from the University of California, among others.  However, not surprisingly, retirees fear Alzheimer’s and other types of dementia more than any physical ailment, including cancer or infectious diseases, according to the “Four Pillars” study.

• Family – Retirees get their greatest emotional nourishment from family relationships – and they’ll do anything it takes to help support those family members, even if it means sacrificing their own financial security. Conversely, retirees lacking close connections with family and friends are at risk for all the negative consequences resulting from physical and social isolation. 

• Purpose – Nearly 90% of Americans feel that there should be more ways for retirees to use their talents and knowledge for the benefit of their communities and society at large. Retirees want to spend their time in useful, rewarding ways – and they’re well capable of doing so, given their decades of life experience. Retirees with a strong sense of purpose have happier, healthier lives and report a higher quality of life.

• Finances – Retirees are less interested in accumulating more wealth than they are in having sufficient resources to achieve the freedom to live their lives as they choose. Yet, retirees frequently find that managing money in retirement can be even more challenging than saving for it. And the “unknowns” can be scary:  Almost 70% of those who plan to retire in the next 10 years say they have no idea what their healthcare and long-term care costs will be in retirement.

So, if you’re getting close to retirement, and you’re considering these factors, how can you best integrate them into a fulfilling, meaningful way of life?

You’ll want to take a “holistic” approach by asking yourself some key questions: What do you want to be able to do with your time and money? Are you building the resources necessary to enjoy the lifestyle you’ve envisioned? Are you prepared for the increasing costs of health care as you age? Have you taken the steps to maintain your financial independence, and avoid burdening your family, in case you need some type of long-term care?  Have you created the estate plans necessary to leave the type of legacy you desire?

By addressing these and other issues, possibly with the help of a financial professional, you can set yourself on the path toward the type of retirement that’s not really a retirement at all – but rather a new, invigorating chapter of your life.

Information in this article is provided by Edward Jones.

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.

If you have questions about this article or other financial matters, contact Wilman at 301-690-8130 or email


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