9 Key Strategies for Preserving Your Wealth in Retirement

You have wealth and want to maintain it and do what you want to with it, such as passing it on to your loved ones and potential future generations. Unfortunately, it’s not as easy as you think

Introduction

You’ve worked hard to create wealth. Or you and/or your spouse were fortunate enough to have been the beneficiaries of ancestors who desired to pass on their wealth for the benefit of future generations.

Whatever the case, you now have wealth as you prepare or are already in retirement. And you are probably starting to realize that everyone and their brother is seeking a piece of your assets, with the U.S. government standing at the front of the line.

The focus becomes one of protecting and preserving your wealth. How can I pay the least taxes, protect it from others who wish to take it away, ensure medical issues and care don’t wipe out a big portion, and the ultimate nightmare, somehow outlive my savings and assets.

Today we look at a number of strategies that can help you preserve that wealth, allowing you to live comfortably and able to meet your retirement goals, such as passing it on to loved ones, beneficiaries (e.g., foundations, charities) and future generations.

Create a financial plan to protect your family wealth

If you have more than a small amount of assets, you should seriously consider working with a qualified financial planner or advisor. They can work with you to put together a comprehensive plan that holistically accounts for everything you own, your plans and goals, health and LTC needs, tax and income issues, proper construction of your portfolio, legacy, and much more.

A plan ultimately helps protect you against the things that unexpectantly happen, as well as the predictable changes that occur as we age.

A good plan acts a roadmap that assists you in your day-to-day living, ensuring you know what you have to work with, where your income is coming from, needs in terms of spending, paying the least amount of taxes possible, et. cetera.

But it goes way beyond those issues.

A holistic plan looks at your entire life and how you live it. This includes ensuring that your health and LTC needs are addressed before they become serious issues that impact you and your family.

You also want to account for what you desire to do with your wealth by utilizing a comprehensive estate plan to ensure your wishes and goals are carried out and that your assets are distributed correctly and don’t end up in probate.

Overall, your retirement plan will help you stay on the right path to living out the 2nd-stage of life you envision.

To achieve these goals and increase your odds of a good outcome, you actually need the services of a qualified private wealth advisor, which is a specialized subset of financial advisory and retirement planning.

These professionals are trained to understand the complexities of managing high-net worth families and their significant assets and issues. Recognizing the need for this special area of financial advisory services, Oak Harvest employs several wealth advisors, including  OHFG Founder and CEO, Troy Sharpe, CFP®, CPWA®, CTS®.

Diversify what you have

When it comes to investing of any type, be it the stock or bond markets, commodities, real estate, collectibles, business partnerships, et. cetera, you have to be aware of one of the older financial maxims – never put all your eggs in one basket.

Whether you knew it at the time or not, when you were younger and told not to put all your eggs in one basket, what you were really learning was the concept of diversification – spreading your risk around to protect yourself.

You now surely know intuitively not to put all your money into one stock. It could lead to disaster. Simply putting your money into two stocks at least reduces you risk somewhat. But obviously, not near enough.

What many people fail to recognize is the interrelationships between companies and areas of commerce. The fact they can often effect and be effected by other others, even if they don’t seem to be corelated (related) to each other.

This goes on in individual counties and regions of the world, as well as globally. At times it can seem like there is no safe haven, but historically investors find their way. This almost always requires rotating between asset classes (e.g., equities, bonds, commodities, real estate) to avoid severe losses and even to find profit.

This can get quite complicated, as you might imagine. In fact it took a Nobel Laureate, Harry Markowitz in the 1950s, to create the amalgam of ideas and guidelines that are now recognized as modern portfolio theory or MPT.

At its core, MPT is based on the practice of constructing a portfolio of assets from different classes in order to reduce risk.

Covid-19 is an example. It was a black swan-type event that no one anticipated, yet nearly everyone worldwide was in some way affected. It seemed everything was shut down. But in fact countries and businesses quickly realized there were some things that couldn’t be shut down and had to go on.

Even early on some investors recognized the opportunity during the midst of the global pandemic. There were in fact some sectors and areas of the world that fared better than many others. This offered economic opportunity, which some took advantage of while many others didn’t.

Covid-19 is a stark, near-term lesson in the need for diversification and a reminder it’s best to work with an expert that can ensure your investments are diversified.

Have an effective withdrawal strategy

When it comes to wealth preservation, one of the most important things you need to consider is how you will go about efficiently spending down your assets.

Part of this involves creating a withdrawal strategy that will allow you to take distributions from your various accounts, including those that are qualified (such as IRAs and 401(K)s), In a manner that reduces the taxes you must pay.

Equally important, it allows for Income that covers the needs of your spending plan. Both are key components of your overall retirement plan.

Three key elements of an effective withdrawal strategy include:

• Determining the best withdrawal rate for your portfolio – which can change from year-to-year and certainly over time
• Tax planning strategies specifically constructed to adjust to your situation and to ensure you pay the least amount of taxes over your lifetime
• Proper asset allocation that encompasses all of your holdings. You’re allocation should be adjusted accordingly due to issues in the markets and your overall situation, as well as changing needs through the retirement stage of your life

When it comes to withdrawals and spending in retirement, you’ll often hear about the 4-percent rule. The reality is utilizing this financial rule provides no guarantee that your assets will last your lifetime.

Working with a financial professional and utilizing different strategies and tools can allow you to spend at a potentially much higher rate than simply sticking to the traditional 4-percent rule.

Use insurance to protect your wealth

Quite often retirees feel that as they have grown older and the kids have become adults, there’s really no need for insurance.

That’s not a safe assumption. There’s the obvious, such as homeowner and automobile insurance, but there’s also health care related and long-term-care (LTC) issues where insurance can prove critical.

Additionally, there are types of insurance to protect assets against lawsuits and creditors, for use as part of a wealth transfer plan, for use in trusts, if you own a business, and much more.

Just as with your retirement plan, you should work with professionals. This should include an insurance professional, retirement planner and possibly an attorney.

Collectively, they can work together to ensure you have the insurance coverages needed as part of your overall wealth protection plan capable of  protecting you, your family and your assets.

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Consider an annuity

There’s a unique type of financial product that for the most part is highly misunderstood and often denigrated by advisors and the financial media.

One of the big reasons for this is the lack of familiarity or knowledge. There’s also the fact there are often commissions involved. In reality,  those are often paid out of the marketing department budgets of the insurers who provide annuities, and those fees are generally not paid  from the customer’ s account.

Good financial advisors never put themselves before their clients, so the products and the tools they recommend are all based first and foremost on helping their clients achieve the best financial outcomes possible.

In terms of purchasing an annuity, which is a guaranteed contract between you and an insurance company, doing so can help solve problems or issues that no other type of security can efficiently accomplish.

Adding a fixed annuity or a fixed indexed annuity (FlA) can provide income with built-in interest, oftentimes beating or at least offsetting inflation and taxes. The income they provide is guaranteed by the insurance company for a set-period of years, or oftentimes for the rest of your lifetime and that of your spouse.

They are especially useful for those seeking:

• Principal is protected and guaranteed by the insurance company
• Potential for lifetime income, so you have peace of mind you won’t outlive your savings
• Death benefits protecting your loved ones and other beneficiaries
• A separate income stream for you to utilize in retirement
• A tool to continue to grow your savings in a tax-deferred investment vehicle (potentially tax-free if purchased through a Roth IRA)
• Ability to build in customizable features to address your issues and needs
• Asset protection
• Tool for healthcare and LTC planning
• And, more

When it comes to annuities, the key is working with a good advisor or financial planner who understands your situation and needs. They will work with you to determine if an annuity is warranted. If so, they will help you find the best product that is well-suited for your needs.

Healthcare costs can take a big bite out of wealth

Part of seeking to protect your wealth should include planning ahead for health care costs that are sure to arise for you and your spouse during your retirement years.

While you will likely be eligible to receive Medicare benefits and coverage once you hit age 65, there are many things that are not fully covered – out-of-pocket expenses ranging from premiums and deductibles to copayments and coinsurance.

In fact, you will probably need supplemental insurance to cover non-covered procedures, drugs, equipment, dental, and many other things that you will most likely encounter during your years in retirement.

One critical area that is often overlooked is that of long-term-care. Among the reasons is the fact it is an unpleasant subject, people think it is covered by Medicare, many estimate that they won’t need it (they will be the exception), the propensity to simply ignore an issue that far down the line (which may not be the case), and more.

LTC Facts:

According to the Kaiser Family Foundation or KFF, 70-percent of people aged 65 and older will require LTC at some point.

According to the American Association for Long-Term Care Insurance (AALTCI), if you’re 55 you could pay an annual premium of $950 for a level-health (value of policy never increases) $165,000 policy. The same policy for a female will cost an average of $1,500, and for a 55-year-old couple the combined cost is just over $2k.

If you wait to purchase any of those same policies until age 65, those costs nearly double.

Of all the expenses in retirement, healthcare costs and paying for LTC can wipe out a tremendous amount of wealth if it hasn’t been planned for correctly. It can inflict financial and emotional toil on a family and impact the manner in which you live out your life.

Planning can at least help mitigate some of the risk and some of the unpleasantness of such a scenario.

Fixed-Indexed Annuities: Consider the Alternative

This paper focuses on uncapped Fixed Indexed Annuities which, if
structured properly, can help control financial market risk, mitigate
longevity risk, and may outperform bonds over time.

access report

 

Prepare for inflation

One of the unpleasant realities of life, aside from taxes, is the fact that prices rise on a regular basis due to all sorts of issues and reasons. Yes, inflation is a reality and one that you have to prepare for in retirement, or it can seriously endanger your wealth.

Even when inflation is considered under control, in the area of 2- to 3-percent, you have to account for it in your overall retirement savings. At a minimum you want to grow your savings to at least cover inflation and preferably the taxes you will owe each year. Not doing so diminishes your wealth.

One of the ways you can do so is to continue to stay invested in a balanced portfolio that includes an array of carefully allocated securities and tools. As previously addressed, a holistic portfolio is properly allocated, enabling you to protect your wealth, continue to grow your assets prudently on a risk-adjusted basis, pay the least amount of taxes, and provide you with the peace of mind that you are protected.

When inflation does start to increase, there are different types of products or vehicles that you can use that are actually better-suited for such periods.

These can include certain types of stocks that perform well during inflationary periods, high interest savings accounts or short-term CDs (interest rates tend to rise during inflationary periods due to the Federal Reserve raising the Fed Funds Rate to combat inflation), indexed annuities, real estate, and precious metals.

Save for emergencies and large, unexpected expenses

One of the things people often overlook when seeking to protect their assets is that of creating a fund for emergencies, large purchases, or other issues that can arise and that are not part of their planned monthly budget.

Whatever the issue, emergency or even an opportunity that might suddenly arise, you may find yourself unable to deal with it without interrupting your budget, or even able to address it at all.

Sure, it’s easy enough to cover a set of tires out of your monthly spending plan, but that can range from $500 to well over a grand…and waaaay higher for that sports car sitting in the drive.

And suddenly that monthly spending plan is under pressure. While you have a fair amount of wealth, you may not have sufficient cash flow in the moment the unexpected arises, just as everyone else. Then you find yourself robbing from Peter to pay Paul, as it were.

More often than not something has to give, so you cut back on the amount you allotted for investment that month, or your grocery bill, or any other type of spending you were prepared for.

Equally important, not following your monthly spending plan can lead to bad habits, late payments (which can hit your good credit and suddenly make it more expensive and harder to borrow), and all sorts of other issues.

At Oak Harvest we recommend that you try to set aside and save up to six months of your normal monthly spending budget. You will want to keep that money separate in an interest-bearing savings account or another vehicle that you can quickly and easily access, especially in the case of an emergency.

If you do have to access the account at some point, you’ll want to replenish the funds used as quickly as possible. Doing so ensures that you have that emergency measure in place to protect your family and your assets in the future, if and as the need arises.

Plan to live longer than you think

When we are young we tended to look at life as something that would go on forever. Sound familiar?

Eventually we get into the “doldrums period” where life becomes all about raising kids, the issues associated with having a family and maintaining a home, work, and all the other life issues that can become burdensome.

Still sounding familiar?

Eventually we get to a stage where we appreciate the things we’ve done and what we have acquired through hard work and diligent planning. That’s when many of us start to think about our mortality and living fully…as long as we have quality of life.

At that point, the question of how long you’re likely to live gets real. The answer almost inevitably boils down to health, the longevity of your parents and ancestors, and other factors we can’t quite put our finger on – such as the reason you might get hit by a bus while walking the dog 10 minutes from now. Devine planning, simple bad luck, et. cetera.

C’est la vie

While important and insightful, how long we will live remains for the majority of us a half-educated guess, at best.

Ironically, when it comes to financial planning, It’s natural to think we will live a shorter lifespan, so we plan based on fewer years in retirement.

Unfortunately, that can lead to unpleasant surprises, such as outliving your money late in the ballgame and with no ability to address such a nightmare scenario.

To counter this, you need to plan for living longer by using tools and strategies, such as an annuity that guarantees lifetime income, having a plan in place to address increasing healthcare costs, purchasing LTC insurance, final care insurance (if you lack life insurance), and more.

Lacking a plan that accounts for you living longer in retirement than you might expect can end up depleting your wealth as you get much older and potentially reduces what you can pass on to your loved ones and even future generations.

Conclusion

Many might look at the notion of having wealth being “problematic” as a ridiculous, even elitist thought – a so-called “good problem” to have versus the alternative.

That’s certainly understandable! But the fact is that none of us want to lose what we do have. Something we can all identify with.

However you’ve come across the wealth you have, it should be clear that the more you have, the more risk there is involved. And the fact that you have to plan to protect it or it may go away to some extent…even disappear altogether, as some have learned the hard way.

While this sounds self-serving, there are way too many working parts and considerations that a solid wealth preservation plan must encompass.

Which is why you need a plan and a specialist in dealing with the complex issues of preserving your wealth.

If you do have a wealth preservation plan, we’d be happy to look at what you have to determine if it is capable of adequately and securely meeting your goals and those of your family.

If you don’t already have one, we can assist you by creating a holistic wealth preservation plan that is capable of helping you to retire with confidence.

We can build a comprehensive retirement plan utilizing strategies and planning techniques that address the important issues in wealth preservation, such as proper asset allocation risk, Social Security, taxes, income, spending, healthcare, legacy, and more, customized to your family’s specific needs.

A wealth plan created with the goal of ensuring you can successfully live out the retirement you envision.

If you are ready to take the next step and talk to a team of wealth advisors and retirement planners who can advise on all your retirement needs, and who will put your interests first, schedule a call today!

 

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