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So You’ve Retired With Plenty Of Money – Now What? Wealth Management Solutions In Retirement
Well, you’re one of the lucky ones who’s making a killing in the real estate market and the stock market, or you’ve scrounged up and saved so that someday you hope to have a large enough stash to retire. Congratulations! You did it. What now?
Financial planning has historically focused on helping people achieve important financial goals, such as saving and investing for a comfortable retirement, sending their children to college, or buying a private island in the South Pacific.
But what about retirees who, for the most part, have already reached their goal and just want to maintain their lifestyle? Life changes when you live for your goals instead of striving for them. Suddenly, you have more to lose than to gain, and you want to know how to keep what you have. Generating and creating wealth is no longer the most important thing at this stage of life, but maintaining wealth is vital. As more Americans approach this stage of life, the question of how to manage money in retirement is becoming more of a priority.
Consider these statistics:
The largest and growing portion of our nation’s population is the 100-year-old population.
Over the next decade, most boomers will reach traditional retirement age. About 25% of the US population – one in four people – will be retired.
Many of us will spend more years in retirement than we have worked.
However, if you search the Internet for retirement help, you’ll find page after page that focuses almost exclusively on making money and building wealth in retirement, rather than wealth management in retirement. No one seems to be teaching retirees how to manage their income and develop proper distribution strategies. Estate planning is well covered – probably because it’s “purpose” is to provide money for heirs. But helping retirees manage the money they have today while they’re still in retirement is conspicuously absent from most financial education efforts.
Based on our experience coaching our clients for retirement, there are seven key areas in which retirees need both financial education and financial planning to protect and preserve wealth:
Money management. Managing your monthly expenses to ensure they are not forced to take large distributions from their retirement funds to meet current obligations.
Nest cleaning. Out of place, out of mind is too often the mantra for retirees. However, organizational failure can be disastrous down the line. Get all those retirement accounts together: IRAs (yes, some people really do forget about the old IRAs they have), old 401k’s from previous employers, annuities, etc., review and combine. Roll that 401k into your IRA, which is almost always in your best interest. Make sure the accounts have the correct information, such as beneficiaries, and that they are set up directly. When you or your spouse dies, it’s too late.
Distribution planning. Distribution planning to make sure you don’t take too much or too little out of their retirement accounts, minimizing tax liability and meeting required minimum distribution amounts.
Managing your money and continuing to accumulate assets. Now that retirees are living longer, their nest egg should last longer. The old paradigm of becoming more conservative in retirement can sometimes backfire when retirees become too conservative and stop their assets from growing. It is important to be sure that they continue to grow their nest egg to at least keep up with their distribution needs and stay ahead of inflation and taxes.
Protection of wealth. This is the area where retirees get the most attention – in the form of real estate and insurance planning. However, they usually get information from a variety of sources, and there is a lot of inaccurate or misleading information about how to set up wills, trusts and charities, and what type of insurance policy is right for their personal circumstances. In addition, insurance and estate planning tend to be treated separately, when in reality both are tools for wealth protection and often for tax minimization.
Creating your legacy. For high-net-worth individuals, there are some other challenges to ensuring your estate survives: pre-managing your estate tax liability so your children don’t have to sell your assets, such as a business or farm, to pay the bill; creation of charitable trusts (CRT); creation of a family limited liability company or LLC; other (vehicles not even invested yet)
Management of final distribution. This is the most dangerous area and, not surprisingly, the most confusing and forgotten. Careful thought must be given not only to saving and investing your money, but also to the right asset storage arrangement to maximize your income distribution through retirement. Tax law changes all the time, sometimes dramatically, as in the case of the Pensions Act 2006, so learn early and often
Your financial security cannot be left to chance, especially in your golden years. Just because you’ve reached financial security doesn’t mean your financial planning is over. You can spend a lifetime updating yourself on this topic, so you have two options: be an expert or hire one. It’s no good spending your life saving and investing wisely only to give it all back to Uncle Sam! At the end of the day, what matters is what you and your loved ones keep.
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