Published March 2006

Plan ahead to build,
protect financial resources

We all want to achieve financial security for ourselves and our families. But what’s the best way of doing that? Too many people buy an investment here, take out an insurance policy there and just hope for the best. Instead of following this haphazard approach, look at your financial picture in its entirety — and then pursue a set of connected objectives.

What objectives should you follow? There are many, but these may be the most important to consider:

• Build financial assets.
• Protect your resources.
• Create a retirement income stream.
• Transfer your wealth.

Let’s look at the first two of these goals in this month’s column, and the final two in next month’s column.

Building financial assets
While you will certainly have short-term needs, your main reason to build financial assets is to achieve your long-term desires, such as a comfortable retirement. Consequently, you will need to invest for growth. But you should also invest in vehicles from which you can create an income stream during your retirement years.

To meet your need for growth and a future income stream, consider taking advantage of your employer-sponsored retirement plan, such as a 401(k), 403(b) or 457(b). If you are self-employed, or if you own a small business, you can choose from a variety of plans, including a SEP-IRA, a SIMPLE IRA and an “owner only” 401(k). All these plans provide for tax-deferred growth of earnings, so your money may accumulate faster than it would if it were placed in an investment on which you paid taxes every year.

Furthermore, once you retire, you’ll be able to determine the amount of withdrawals from your retirement account, based on your lifestyle and your projected longevity.

To supplement your employer-sponsored retirement plan, you should consider opening a traditional or Roth IRA, both of which offer tax advantages. Of course, over the years, you can supplement your tax-advantaged investments with stocks, bonds and other securities held outside your 401(k) or IRA.

Protecting your resources
Your 401(k), IRA and other investments are financial assets for helping you save for one of your most important long-term goals: retirement. But while you think about your future, you can’t forget about your family’s — and what it might look like without you. That’s why you need to protect your most essential financial resource: your income.

And that means having sufficient life insurance. Your financial professional can help you determine how much coverage you need. But you can’t stop there — because you don’t have to die to lose your income. Consider this: A 20-year-old worker has a 3-in-10 chance of becoming disabled before reaching retirement age, according to Social Security Online. Disability insurance helps guard your income against disability.

Finally, you’ll need to protect your financial resources during your retirement years. You may never need any type of long-term care, but it’s a chance you may not want to take. A year’s stay in a nursing home can easily cost $50,000 or more. To avoid bankrupting yourself or becoming a burden on your family, you may need long-term care insurance.

Accumulating resources and protecting them — two key elements of your entire financial picture. Make sure you’ve got these pieces in place. Next month: creating a retirement income stream and transferring your wealth.

Eric Cumley, CFP, is an investment representative with Edward Jones in south Everett. He can be reached at 425-353-2322. Edward Jones is an NYSE-member investment firm with more than 9,000 offices nationwide.

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