You’ve Worked a Lifetime to Build Your Wealth. Here’s How to Keep It!

Set yourself up for success by knowing what you want out of retirement, getting a grip on your spending needs and wants and then regularly checking whether you’re on track.

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The first half of 2022 was one of the worst starts for the S&P 500 since 1970. Many investors saw their portfolios decline by 15% or more during the first six months. On top of that, bonds – usually a safe haven for investors – also experienced a significant decline.

For investors nearing retirement, there is a good lesson here. The skills required to build wealth are different than those required to keep wealth. Just as you had a goal to build your wealth, now you need a goal and skill set to maintain it.

To accomplish this, everyone needs a plan to address the following:

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  • Their goals for wealth in retirement.
  • A spending and investment plan.
  • Executing the plan and adapting to any changes.

The Why of Your Wealth

This first step is the most important one. An individual or couple needs to determine their priorities, including how they will enjoy the wealth they have built. Most people not only want to maintain their current living standard, but also spend money on new activities and exciting adventures while continuing to support their adult children and grandchildren.

Here are some of the common ways people choose to spend their wealth, which will allow us to develop a financial plan to meet them:

  • Additional travel and vacations.
  • Contributing to a grandchild’s 529 college education plan.
  • Donating more money to local charities.
  • Purchasing a second home.
  • Leaving a sizable inheritance for adult children and other family members.

Making a Budget, with Room to Spare

With your goals laid out, the second step is developing a plan to pay for these items while also protecting your portfolio. Unfortunately, the trap some wealthy retirees fall into is thinking their assets – even if they have millions of dollars – will sustain them no matter what.

Begin with developing a budget to determine how much it will take to accomplish one or more of your goals. Here’s a good example:

A couple receives $200,000 annually from Social Security benefits and investment income. With no mortgage or car payment, they have annual living expenses of $120,000 (including fixed and variable expenses). They’ve also set aside $40,000 annually for emergencies, including any home improvements.

The remaining amount can easily cover their desire for travel, 529 plan contributions to a grandchild’s education and some charitable donations. However, if they want to purchase a second home, this amount will likely need to come from their investments – thereby cutting into their portfolio.

Less money in the couple’s investment account would likely reduce the amount of money they could withdraw each month from their portfolio. Plus, once they purchase the home, they will have the additional expenses of maintaining and caring for it – everything from utilities and a home security system to lawn maintenance and any needed repairs.

If you desire a second home, work with a financial adviser to make certain you can afford it without having a dramatic impact on living expenses and other needs. This is generally accomplished by running a financial analysis to show the impact of the extra expense on the portfolio over the next 20-30 years.

Executing Your Spending Plan

When it comes to actually putting your plan into action, the first few years of retirement are crucial for establishing good habits. If you aren’t used to living on a budget, it can be easy to spend more money than have you coming in. After settling into retirement for a few months, you may decide it’s time for an unplanned exotic vacation – fun stuff, but it could impact other plans for your money.

In addition, one or more major life events could disrupt your plan. If either or both spouses become quite ill, some money may be needed for additional care and medical expenses. Even if you remain healthy, you may need to care for a relative or provide financial assistance to an adult child going through a difficult period.

Revisiting Your Plan Regularly

The final step to maintaining wealth is to ensure your plan is on track by re-evaluating it every six months. You may find you are spending more money than anticipated, or even have some savings that can be used for new activities. After some years of success, you can evaluate less often. Either way, most retirees find their plans change over the years to accommodate their vision.

Once you’ve established the purpose of your wealth and set up a plan to execute your goals, you’ll be less likely to suffer a setback and enjoy your money for a long time. That’s a goal all of us can agree on. As always, remember to consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Mike Torney’s planning specialty at Moneta (opens in new tab)is in taxation and portfolio construction, helping clients with advanced planning and creating financial action plans. Mike is consulted to design generational wealth transfer plans, review client estate plans, create or update business exit plans, and implement tax savings strategies. He develops the investment plans for new clients and evaluates investment opportunities for existing clients. Mike joined Moneta after serving as an Associate Wealth Adviser at Buckingham Strategic Wealth, where he earned his Certified Financial Planner™ designation. He previously served as a law clerk while acquiring his J.D. and LL.M. in taxation from Washington University School of Law.