Are you thinking about your legacy and how you will pass it to your heirs? You’ve worked hard your entire career to accumulate assets and build a nest egg to your children and grandchildren. You may want to provide an education for your loved ones or help them jump start their retirement savings.
To achieve these goals, it’s helpful to have an estate plan in place. Your estate plan should prioritize your objectives and offer a strategy. It should also identify risks and challenges, such as taxes, end-of-life costs and even probate expenses.
Risk protection is the foundation for any financial plan. Without a risk protection strategy in place, you could leave yourself vulnerable to a broad range of risks. It takes only one sizable threat or unexpected event to create a financial crisis and throw your planning off track.
One of the biggest risks you may face is potential disability. If you suffer a long-term disability, you may be unable to work, and you could miss out on months or even years of earnings. That could put in you in a challenging financial position.
According to the Council for Disability Awareness, the average American has a 25 percent chance of becoming disabled at some point in life. However, Americans on average believe they have only a 2 percent chance of becoming disabled.1 Many people don’t protect themselves against disability risk because they believe disability won’t happen to them.
Retirement is a happy milestone, but it can also be a transition that brings difficult issues and challenges. Those challenges can spur tough conversations, especially between spouses. One of the most difficult issues for any couple is facing the prospect of declining health and even death.
It may not be pleasant to think about your own death or your spouse’s death, but it’s a discussion you shouldn’t ignore. It is probable that one of you will outlive the other, perhaps by years or even decades. By discussing death and end-of-life matters in advance, you can ensure financial stability for the surviving spouse.
April is National Financial Literacy Month. The purpose is to educate Americans on some important but often overlooked financial issues. The death of a parent may be one of the biggest threats that family can face, especially if there are minor children in the home.
Despite the threat posed by death, studies show that many households have little or no life insurance protection. A 2015 study from Bankrate found that only 60 percent of Americans had life insurance, and half of those had less coverage than they needed. Among families with children, 37 percent had no life insurance protection, while 32 percent had less than $100,000 in coverage.1
If you’re like many working Americans, your 401(k) may be one of your largest financial assets. The combination of regular elective contributions and matching employer contributions can help a 401(k) balance accumulate quickly.
One of the most powerful features of a 401(k) is the fact that growth isn’t taxed as long as the funds stay in the account. That tax deferral can often help funds compound at a faster rate than they might in a taxable account. You pay taxes on your 401(k) funds when you take distributions, and if you take a withdrawal before age 59½, you could also face a 10 percent early withdrawal penalty.
Often, plan participants are tempted to take money from their account before they reach retirement age. They may have a financial emergency arise. A distribution from the 401(k) may seem like the only possible solution.