Dave says: Add umbrella policy to protect assets

Q. We live in Colorado, and we need some advice on protecting our assets. My wife is a teacher, and I'm a nurse. We make around $180,000 a year combined, and we're set to pay off our home next month. We also have two teenagers who are both driving, so we were wondering about the best way to protect everything if one of them has an accident and we get sued, or something else tragic happens.

A. With your income, and the stage you're in when it comes to wealth building, I think it's time to add an umbrella policy. This is a liability policy, and you could probably buy an extra million in liability coverage for around $250 a year. It attaches to the liability policy that's already part of your homeowners and car insurance.

With a couple of teenage drivers in the house it might run a little more than $250, but I wouldn't think it would be much more, if any. It would just add an extra million to the mix, just in case someone decided they were going to come after you because of a bad situation.

Q. I have a pension plan that will pay me 80% of my top three highest years' income. Should I continue to invest 15 percent towards retirement? I will top out at $79,000 yearly, and I plan on retiring in 28 years.

A. You should always put 15% of your income into retirement once you reach Baby Step 4. I would never count on a pension as my only retirement income, because the truth is many pension funds are very poorly managed.

You'll probably get the pension when the time comes. I'm not predicting it will go broke or anything like that, but there's no way I would leave the financial state of my retirement in other people's hands. That's exactly what you're doing when your plan is to count on a pension or Social Security. With Roth IRAs, 401(k)s and so forth, you're building wealth that you control.

You have to control the controllable, Jordan. There are plenty of things in our lives we have no control over whatsoever, but you have to take charge of the stuff you can control in order to win. Building wealth is one of those things!

DAVE RAMSEY is CEO of Ramsey Solutions. Follow him on the web at daveramsey.com and on Twitter at @DaveRamsey.

Personal Umbrella Insurance: A Simple Explanation

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