Question: John in Loveland: My daughter (who is 16) got her first summer job this year. Currently, his income is deposited into a savings account. Is this OK, or should we do something else with this money?
A: Right now, that money she’s worked so hard for probably isn’t earning much interest given that the national average for a savings account is currently around 0.06%. Set another aside, that’s only three dollars for every $ 5,000 you save. If she wants to spend that money soon, the savings account is appropriate. But if this money is not needed over the next few years, she will get a much better return in the long run if she invests this money in the stock market. And, no, we don’t mean choosing individual actions; keep it simple with an index fund that tracks the S&P 500, which is made up of the top 500 public companies in the country.
And before you worry about the market turmoil, remember that your daughter has decades and decades ahead of her. This extended time horizon will allow him to overcome the ups and downs of the market while benefiting from the magic of composition. Just consider this: If she invested $ 5,000 and earned 7% a year, after 50 years that amount would rise to over $ 147,000 – and that assuming she never adds to it.
Plus, if she used a Roth IRA to house that money, that $ 147,000 would come out tax-free. That’s why we always recommend this type of account to young investors who are likely in a low tax bracket. Because even if there is no initial tax break, they will benefit more from long-term tax-free growth. For 2021, your daughter can contribute up to $ 6,000 to a Roth IRA or up to the amount she has earned, whichever is less. You can also consider a “buddy program” for her if you are financially able to do so. For example, if she earned $ 5,000 over the summer and wants to invest $ 2,500, you could âmatchâ that contribution for a total investment of $ 5,000.
Allworth’s advice is that earning your daughter should be harder on her than just sitting in a savings account that earns virtually no interest. Take advantage of her long time horizon and open a Roth âcustodialâ IRA on her behalf (since she is still a minor). His future self will thank you.
Q: Diana at Cheviot: How do I know if I need LTC insurance?
A:: No one knows if they will need long term care in the future. But the odds are pretty good. According to the Administration for Community Living, a person who is 65 today has about a 70% chance of needing long-term care for the rest of their life. This can range from an occasional need for home help to an extended stay in an assisted living or retirement home. And the average cost of these types of services can vary widely. According to the Genworth Insurance Company, the current average monthly cost of a home health aide in Cincinnati is around $ 4,800, while the average monthly cost of a private room in a nursing home is d. ‘just over $ 9,500. And long-term care costs are not covered by Medicare.
This is when a long term care insurance policy can help, but premiums can be expensive; a 55-year-old single woman will likely spend around $ 2,700 per year on premiums according to SmartAsset. Still, if you’re curious, get quotes on a policy that would cover at least three to five years and see if it’s affordable for your situation.
Here’s Allworth’s advice: Some people can self-insure (i.e. are able to pay long-term care expenses out of pocket), but others cannot. not. A fiduciary financial advisor can look at your whole financial picture to see which camp you are on. Either way, we recommend that everyone at least prepare financially for the possibility that long term care will be needed in retirement.
Each week, Amy Wagner and Steve Sprovach from Allworth Financial answer your questions. If you or a friend or family member is having a money problem, please send these questions to [email protected].
Responses are for informational purposes only, and individuals should consider whether a general recommendation in these responses is appropriate for their particular situation based on investment objectives, financial situation, and needs. To the extent that a reader has questions regarding the applicability of any specific matter discussed above to their individual circumstances, they are encouraged to consult with the professional adviser of their choice, including a tax advisor and / or a lawyer. . Retirement planning services offered by Allworth Financial, an SEC-registered investment advisor. Securities offered by AW Securities, a registered broker / dealer, FINRA / SIPC member. Call 513-469-7500 or visit allworthfinancial.com.