When it comes to mitigating disasters, a culture of preparedness and long-term safety can prove invaluable when it comes to your finances.
The International Day for Disaster Risk Reduction observed on 13 October, is an opportunity to acknowledge the progress being made toward reducing disaster risk and losses in lives, livelihoods and health, to prepare and adapt to the risks of disasters and strikes in different sectors of development.
Consider this: What if we use the same foresight to protect our financial futures against unexpected events?
While financial hardships aren’t exactly the same as natural disasters, it can still be extremely beneficial to have a plan when they inevitably happen. This is especially important as we get closer to retirement.
So, are you ready to learn how to brace for the storms of financial uncertainty? In this blog, we’re going to explore how to combine disaster resilience with financial security. Let’s dive in.
Are you Financially Prepared?
According to a recent Bankrate survey, approximately 22% of U.S. adults admit to having no emergency savings or plan in place. Confronted with unforeseen medical bills, car repairs, or job loss, individuals may have to resort to dipping into their retirement income investments and personal savings.
This situation becomes even more severe for those in retirement planning or nearing retirement age. Neglecting to allocate emergency savings for retirement can result in difficulties during one’s golden years.
However, understanding and managing your finances early can help protect you from these future hardships and secure a safer retirement.
Managing Your Risk
Risk management is like having an umbrella – you might not need it every day, but when you’re stuck in the rain, you’ll be thanking yourself. One crucial aspect of risk management is having adequate insurance coverage. Insurance is a financial safety net, protecting you from the financial fallout of unforeseen accidents, health issues, or disasters. Securing these policies transfers some financial risk to an insurance provider, which can help provide peace of mind.
Another vital component of risk management is maintaining an emergency fund. It serves as your financial cushion, preventing these unforeseen events from derailing your financial stability. A common rule of thumb is to have enough funds that cover at least 3 to 6 months of living expenses. However, during market volatility, consider upping that number to 12 months.
Including risk management in your retirement plan is essential, as it can help you protect the lifestyle you envisioned in your golden years.
Retirement Planning For Financial Freedom
With Americans living longer than ever, retirement planning is key in helping to ensure you don’t outlive your savings. Here are some key principles of retirement planning:
- Set Clear Goals: Start by defining your retirement goals. How do you envision your retirement lifestyle? A clear picture of your goals will help determine how much you need to save.
- Save and Invest Wisely: Saving for retirement involves regularly setting aside a portion of your income. Invest those savings wisely in a diversified portfolio to help them grow.
- Budget and Reduce Debt: Managing your finances effectively throughout your working years can reduce financial stress in retirement. Pay down high-interest debts and stick to a budget to maximize savings.
- Consider Retirement Accounts: Take advantage of retirement accounts like 401(k)s or IRAs, which offer tax advantages and employer contributions.
Include Long-Term Care in Your Plan
Nearly 70% of retirees will need some type of long-term care, according to the U.S. Department of Health and Human Services. This can be a huge expense, depending on the level of required care.
Let’s break down some numbers for Iowa:
- The average statewide cost of assisted living in Iowa is $4,367 / month.
- The most affordable assisted living can be found in Davenport ($4,350 / month) and Sioux City ($4,148 / month).
- In the areas of Iowa City and Waterloo, the average monthly cost of assisted living is just over the statewide average at $4,410 – $4,566.
- The current statewide average cost of nursing home care in Iowa is over $6,500 a month.
Planning for these potential expenses early on can make or break your financial future. However, it can be tricky to prepare for these services. While some retirees will have enough funds to pay out of pocket, that isn’t always the case. That’s why some financial advisors suggest purchasing a long-term care insurance policy. These policies may cover all or a portion of the services with premiums depending on your age, gender, health, location, etc.
Whether you should buy LTC insurance will depend largely on how you balance the following factors:
- Risk Factors. Persons with a family history of Alzheimer’s or other degenerative diseases are at higher risk of needing nursing home care. In addition, women, who make up roughly 90% of current nursing home residents, usually outlive their spouses and are at higher risk of needing nursing home care.
- Age and Health. Your age and health will influence your ability to obtain and pay for LTC insurance. The older you are and the poorer your health, the more difficult to obtain coverage at an acceptable cost.
- Availability of Others to Provide Care. If you have a spouse or other family members willing and able to provide care over an extended period of time, you are less likely to need LTC insurance.
- Income and Assets. You may wish to consult with a financial advisor about whether to purchase LTC insurance. If you have assets that produce enough income to pay for a nursing home, you may not need insurance to protect or preserve your assets. On the other hand, if you have only a small amount of assets, you will probably qualify for Medicaid in a short amount of time, and the cost of insurance may exceed the value of your assets. (Source: Iowa Legal Aid).
It can be beneficial to regularly keep an eye on these costs as you plan for retirement. It’s also important to frequently review and make updates to your retirement plan as circumstances change.
Working with a Fiduciary Advisor
Working alongside a Fiduciary advisor is like entrusting a disaster response team to orchestrate emergency relief efforts. Just as these teams operate with complete trust, good faith, and honesty to safeguard communities, a Fiduciary advisor acts similarly, advocating for your financial well-being with unwavering dedication to your best interests.
Embracing the guidance of a Fiduciary advisor proves to be a wise choice, particularly when crafting retirement plans. With over two decades of Fiduciary experience, Iowa-based Matthew P. Johnson of Johnson Wealth and Income Management is committed to help you work towards achieving all your financial goals and to help provide you with a “worry free” retirement.
Our team of Fiduciary Advisors can help you in various critical areas, including:
- Retirement planning
- Tax optimization
- Informed investment decisions
- Strategic estate planning
- Tailored insurance solutions
- Effective money management
- Achieving a harmonious lifestyle balance
Final Thoughts
As we mark the International Day of Disaster Reduction, remember that preparing for disasters isn’t just about physical safety. Just like we plan for other disasters in life, it’s important to secure our financial future through proper retirement planning.
Working alongside an Iowa Fiduciary can help you navigate the complexities of retirement planning, helping to ensure you have a strong safety strategy in place, even in the face of financial uncertainty.
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