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

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 in the first six months. On top of that, bonds – usually a safe haven for investors – also saw a significant decline.

For investors approaching retirement, here’s a good lesson. The skills required to build wealth are different than those required to maintain wealth. Just as you had a goal to build your wealth, now you need a goal and skills to maintain it.

To achieve this, everyone needs a plan that addresses:

• Your retirement wealth goals.
• 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. An individual or couple must determine their priorities, including how they will enjoy the wealth they have built. In addition to maintaining their current standard of living, most people want to 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 spend their wealth, allowing us to develop a financial plan to accommodate them:

• Additional trips and vacations.
• Contribution to a grandchild’s 529 college education plan.
• Donate more money to local charities.
• Buying a second home.
• Leaving a significant legacy for adult children and other family members.

Create a budget with enough space

After setting your goals, the second step is to develop a plan to pay for those items while protecting your portfolio. Unfortunately, some wealthy retirees fall into the trap of believing their wealth — even if they have millions of dollars — will definitely get them.

Start developing a budget to determine how much you need to meet one or more of your goals. Here’s a good example:

A married couple receives $200,000 annually from Social Security benefits and capital gains. Without a mortgage or car payment, their annual living expenses (including fixed and variable expenses) are $120,000. They’ve also set aside $40,000 annually for emergencies, including all home improvement.

The remaining amount can easily cover her travel wish, 529 plan contributions for the education of a grandchild and some charitable donations. However, if they want to buy a second home, that amount will likely have to come from their investments – and thus eat into their portfolio.

Less money in the couple’s investment account would likely reduce the amount of money they could withdraw from their portfolio each month. Also, once they buy the home, they have the added costs of maintenance and upkeep – everything from utilities and a home security system to lawn care and any necessary repairs.

If you want a second home, work with a financial advisor to make sure you can afford it without having a dramatic impact on living expenses and other needs. This is generally accomplished by conducting financial analysis to show the impact of the additional costs on the portfolio over the next 20-30 years.

Execution of your spending plan

When it comes to actually putting your plan into action, the early years of retirement are crucial for establishing good habits. If you’re not used to living on a budget, it can be easy to spend more money than you get. After settling into retirement for a few months, you might decide it’s time for an unplanned exotic vacation — fun stuff, but it could affect other plans for your money.

Additionally, one or more major life events could interfere with your plan. If one or both spouses become very ill, some money may be needed for additional care and medical expenses. Even if you stay healthy, you may need to care for a loved one or provide financial support to an adult child who is going through a difficult time.

Review your plan regularly

The final step in maintaining wealth is making sure your plan is on track by re-evaluating it every six months. You may find that you are spending more money than you expected or even have savings that you can use for new activities. After a few 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 determined the purpose of your wealth and created a plan to achieve your goals, you’re less likely to have a setback and enjoy your money for a long time. That’s a goal we can all agree on. As always, remember to consult a suitably qualified professional before making any financial, investment, tax or legal decision.