Paul Simmons, CFA
Senior Analyst, Client Needs Research
The pandemic has impacted our daily life in unexpected ways. But what do life changes and unexpected events mean for your financial strategy? Although you can’t anticipate all of life’s curveballs, preparing your financial strategy for the unexpected could better position you to reach your long-term goals.
Depending on your life stage, there are specific risks to consider and incorporate into your financial strategy. We’ve outlined three key stages of evolving needs and certain risks associated with them.
1. Providing for your family’s future
When you’re younger and just starting out, you may be balancing many financial goals. If so, your most valuable asset may be your future income.
How can you help build some security? In addition to an emergency fund, life and disability income insurance can help replace your income and protect your other longer-term goals. If you sign up for your employer’s coverage, make sure the amount meets your needs, taking into account your liabilities, income and other goals, such as education costs for any children. Also, employer-sponsored insurance typically doesn’t stay with you if you lose or change your job. An individual life or disability income insurance policy not only offers more flexibility but also may be more cost-effective.
Be sure you have a clear understanding of your budget when considering insurance solutions. As your personal and financial situations change over time, review your coverage regularly to help keep you on track.
2. Protecting what you’ve worked for
As you near retirement, protecting the financial security you’ve created for yourself and your family becomes important. You’ll want to address the following risks:
Long-term care – 68% of retirees and pre-retirees say their greatest financial worry in retirement is health and long-term care costs.1 Medicare-approved plans don’t cover most long-term health care expenses, which can range from nearly $55,000 for home health to over $100,000 for a private nursing home per year.2 We recommend planning for two to three years of long-term care expenses (using your portfolio, insurance or both) as part of your overall retirement strategy.
Living longer than expected – Diversifying your income sources can help your money last longer. Various sources include Social Security, pensions and portfolio withdrawals. In addition, annuities can provide you with income you can’t outlive. Balancing these strategies provides flexibility for your withdrawal strategy over time.
3. Passing on your legacy
If you have strategies in place to transfer assets to your family or honor a favorite charity, don’t “set it and forget it.” Your life changes over time; tax laws and regulations also can change. It’s important to review your estate strategy, including beneficiary designations and life insurance policies, to ensure everything is up-to-date and aligned with your goals.
Your financial advisor can help with balancing your retirement and legacy goals, determining an appropriate insurance strategy and reviewing beneficiaries. But it takes a team approach – you, your financial advisor and your CPA or attorney – to build a strategy to pass on your legacy.
Taking the first step
The pandemic has created a lot of unexpected events, and we’ve all had to adapt. Now is a good time to review how your needs may have changed and if your goals remain appropriate. To get started, outline where you are today, and then decide what you need to do to prepare for tomorrow. Depending on your life stage and goals, you may need to account for additional risks.
The good news is you don’t have to go it alone. Your financial advisor can work with you to review your current situation and develop a strategy to help you prepare for the unexpected.
Everyone shares these risks
There are some risks everyone should be prepared for. But how you protect yourself and the impact of each risk can change throughout your life.
Unexpected expense risks – Plan on having three to six months’ worth of cash on hand. If you’re retired, plan to cover about a year’s worth of living expenses for everyday spending in addition to three months of cash for emergencies.
Medical risks – Take advantage of any employer-sponsored health insurance. If you’re retired, Medicare and Medicare Supplemental Insurance typically replace your employer’s coverage. Be sure to review your coverage each year.
Liability risks – How you insure your house, car, etc, can change throughout your life. It’s important to “shop around” and review your coverage limits. As your assets increase, adding an umbrella policy may be appropriate.
Investment risks – Having a diversified portfolio aligned with your risk tolerance and time horizon is important to protect against market risks. As you age, your time horizon and risk tolerance will likely change. Regularly rebalance your portfolio, review your time horizon associated with each goal, and evaluate your risk tolerance.
1 Source: Edward Jones/Age Wave study “The Four Pillars of the New Retirement,” 2021.
2 Source: Genworth’s 2020 Cost of Care.
Diversification does not guarantee a profit or protect against loss in declining markets.
Edward Jones is a licensed insurance producer in all states and Washington, D.C., through Edward D. Jones & Co., L.P., and in California, New Mexico and Massachusetts through Edward Jones Insurance Agency of California, L.L.C.; Edward Jones Insurance Agency of New Mexico, L.L.C.; and Edward Jones Insurance Agency of Massachusetts, L.L.C.
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.