A Guide to Wealth Management

close up on tablet with charts and graphs for wealth management

One would think that with more money, your financial needs decrease. While in the case of meeting basic needs this is true, the opposite can be true as the complexity of your financial life increases. Financial planning becomes more challenging, as you now have more assets to manage and higher stakes, such as tax consequences, to contend with. It is because of this increasing complexity that affluent investors often turn to wealth managers for help.

To help you determine if wealth management is right for you, we’ve created this guide. Here, we discuss the key elements of wealth management for investors at every phase of life.

Chapter 1

Investment Management

Investment management is an important component of wealth management. Investment management focuses on your investment portfolio and how it fits into your savings, tax planning, retirement needs and overall financial plan. Investment management involves determining the proper asset allocation and investing strategy for your unique situation.

To accumulate wealth involves two specific steps: First you make the money; second, it’s important to follow a carefully planned strategy and have the discipline to execute that plan consistently. The more money you have, the more money you can leave on the table. 

Successful investment management should incorporate: 

  • Evidence-based strategies that have stood the test of time
  • Carefully managed risk
  • Analyzed investment options
  • Guidance based on facts, not fads

Contrary to popular belief, investment management should not be about trying to find the next “hot” stocks and timing the market.

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Chapter 2

Portfolio Stress-Testing

Another important element of wealth management is portfolio stress-testing. Stress-testing involves running various “what if” scenarios on your portfolio. What if there is a 10-year bear market? What if we experience another global financial crisis? What if the next bull market lasts 20 years?

Using specialized software and historic economic and financial data, a wealth advisor can run many different scenarios to see how your portfolio could perform under various conditions. 

Based on the results of these tests, a wealth advisor can make adjustments to your investment strategy to increase your likelihood of a positive outcome in the scenarios that are important to you. Perhaps this means transitioning to a different investment mix to prepare for a bear market as you are approaching retirement. Or perhaps it means making adjustments to help plan for an earlier retirement than expected.

This part of the puzzle is not a one-size-fits-all solution. The right strategy should be based on your needs, your goals and your concerns as well as your age and phase in life. 

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Chapter 3

Important in Your 40s: Are You Saving Enough

Your 40s are a pivotal time in your financial life. This is the decade most of us cross the halfway point to retirement. While retirement may still be 20 or more years away, it’s important to make sure you’re doing everything you can to safeguard your retirement plans. So, how much is enough to save in your 40s?

The first step to knowing if you’re saving enough for retirement is to determine your retirement expense projections.

The 4 Percent Rule is commonly followed by retirees. The rule states that under most conditions, they can withdraw 4 percent of their retirement portfolio each year, adjusted for inflation, for 30 years without running out of money. This suggests that you’d need to save 25 times the amount you want to spend each year in retirement. If you want to spend $60,000 per year in retirement, this rule states you would need $1.5 million to retire.

These numbers can be intimidating, but if you start planning early and follow a plan that’s based on your situation, you break it up over time. Make sure to review your portfolio with your wealth advisor at least once a year to make sure your lifestyle and goals still match your plan. 

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Chapter 4

Important in Your 50s: How to Boost Your Savings

By your 50s, retirement may be looking a lot closer. You could even be down to your last decade (or two) to save and prepare. This is not the time to let off the gas on your savings. Just the opposite! Your 50s are when you should be ramping up your savings.

Luckily, your 50s are a prime time to focus on your retirement savings goals. The IRS gives savers a bonus on their 50th birthday: The right to make “catch-up” contributions to your retirement plans. Once you turn 50, you can save even more to your employer-sponsored retirement plan and IRAs. If you’re not already working with a financial advisor by the time you’re 50, it’s a good time to start! You don’t want to miss out on opportunities because you’re unaware of them.

Your 50s is also a good time to save for future medical costs. The average 65-year-old retired couple can expect to need around $295,000 after tax to cover retirement healthcare costs. Talk with a financial advisor about long-term-care insurance and/or a Health Savings Account (HSA). If your employer plan includes it, an HSA allows you to make pre-tax contributions to the account that can be withdrawn tax-free to pay for medical expenses for yourself or an immediate family member. The money inside an HSA is invested and rolls over each year, so you don’t have to worry about “using it or losing it.”

Once you reach age 65, an HSA becomes like a Traditional IRA in that you can withdraw the money for non-medical purposes and just pay regular income tax on the withdrawal. In this way, HSAs can be great extensions of a retirement savings plan.

Chapter 5

Important in Your 60s: Living on Your Investments

For a lot of professionals, our 60s is when we cross the finish line into retirement. After decades of working and saving, you’ve hopefully accumulated enough money to stop living off of your paychecks and start living off your investments. 

In your 60s, many people switch from the accumulation phase of retirement planning, when you’ve been building your savings and investments, to the distribution phase, when you start to live off of those investments. How you make this transition will have a major impact on your retirement success. 

Your retirement portfolio is likely made up of both your investments and other streams of income like Social Security, a pension or an annuity. Ideally, you will have enough in reliable streams of income to cover your essential living expenses. This will give you the greatest flexibility in how much income you withdraw from your investments. If a bear market occurs, you can simply restrict your discretionary spending so you don’t end up liquidating too much of your portfolio.

The years leading up to retirement can be used to start transitioning from the growth-oriented investments, utilized in the accumulation years, into income-producing investments that will be used more heavily in the distribution years.

Remember, wealth management is not a cookie-cutter solution. Make sure you discuss your plans with a financial advisor who can help. 

Chapter 6

Important in Your 70s and Beyond: Will You Outlive Your Money 

As you settle into retirement in your 70s, your financial picture will continue to change. Now that you’re living in retirement, you’ll have a much better idea of how much retirement will cost. You might have a better idea of if you want to continue living in your current residence or relocate, perhaps somewhere smaller or with assisted-living support. You may even face some unexpected expenses, such as medical care. Like in any phase of life, as your retirement picture changes, it’s important to revisit your financial plan to make sure you stay on the right path.

If outliving your money is a concern, you can take steps to plan for your long-term financial stability.