For those who have spent years working to accumulate assets and financial success, one of the most important financial transitions will arrive with retirement, when the focus shifts from accumulating wealth to preserving and distributing it wisely. This stage isn’t just about managing assets, it’s about aligning your financial decisions with the lifestyle you’ve worked hard to build.
Step 1: Start Early - Plan 5-10 Years Before Retirement
Most people spend the bulk of their careers accumulating wealth through salaries, investments and retirement accounts. But the most critical period for wealth planning starts a decade before retirement, when preparing for the transition from accumulating wealth to distributing wealth should begin.
This “pre-retirement” window is the ideal time to begin to map out and organize the structure of your financial life in retirement by consolidating financial accounts, assessing income needs, and creating a sustainable distribution schedule and withdrawal strategy. If done well, it becomes the foundation for decades of financial security.
For business owners in particular, early planning becomes even more essential. Selling or transitioning a company is often more complex than rolling over an individual 401(k). The more time allocated for that process, as well as family business succession planning, the more successful and tax-efficient it can be.
If you retire at 65 and live to 90 or 95, your assets need to last 30 years or more. That means your portfolio still needs to grow, even after you’ve stopped working.
Step 2: Use a Holistic Planning Approach to Reflect Your Values and Goals
When it comes to your own wealth management, most people focus on their investment accounts, such as 401(k)s, IRAs, pensions and savings. But the strongest financial preparedness is shaped with a more holistic point of view. Your tax strategy, estate planning and philanthropic goals are as important to your wealth management strategy as your investment strategy. They all affect the kind of financial position you’ll enjoy in retirement. A values-based planning approach ensures that every decision supports your personal goals — whether that’s creating a legacy, supporting future generations or giving back to your community. This broader, integrated view helps protect your wealth and align it with the life you want to live.
Step 3: View Tax Efficiency as a Lifetime Goal
Taxes can often be overlooked in the rush to build wealth, but thoughtful planning can reduce your lifetime tax burden, especially once distributions begin in retirement. Traditional retirement accounts like 401(k)s and IRAs are often fully taxable at withdrawal. If you’re in a high tax bracket, that can significantly dissolve your income.
Step 4: Planning Ahead Opens the Door to More Tax-efficient Strategies
For example, converting tax-deferred assets into Roth IRAs or Roth 401(k)s while you’re still working or in early retirement years can be favorable for your tax base. Taking the time to understand your approach to tax deferred assets, including asset location (which types of investments go into which types of accounts) as well as asset allocation (where to invest), can help optimize your tax efficiency. Placing tax-inefficient assets in tax-advantaged accounts and keeping more tax-efficient investments in taxable accounts can make a significant difference over time.
Developing a perspective of lifetime tax efficiency, rather than a yearly focus, is critical to protecting your wealth in the long run.
Step 5: Prioritize Estate Planning Documents
Estate planning is a critical, yet often overlooked part of wealth preservation. While it can be uncomfortable to think about, it is important to have the right documents in place — wills, health care proxies and a power of attorney — to protect both your wishes and your loved ones when you are no longer alive and if you are unable to make decisions for yourself.
As life changes with marriage, children, business growth and situations such as relocation, other financial factors become introduced into your estate. A well-prepared estate plan avoids unnecessary complications, and may include additional tools such as a trust for clearly transferring your assets to another person. Proactively revisiting your plans with a financial advisor or estate attorney ensures they reflect your goals and values whenever you experience a life-changing event. And making it a regular practice to review your estate planning documents helps to ensure your financial affairs and estate are in good order.
As your financial life becomes more complex, so does managing it. Coordinating your financial planning and investment management approaches with both your banker and wealth advisor simplifies your financial life and can lead to better outcomes.