Wealth Preservation

At some point, saving for retirement becomes secondary to preserving what has already been accumulated. This natural shift occurs when the weight of what’s at stake and a shrinking time horizon, tip the scale from an “accumulation” mindset to a “preservation” mindset. 

Taking steps to reduce risks in a retirement portfolio makes a lot of sense as the retirement transition approaches. However, protecting investable assets from market volatility has become more challenging in recent years. The traditional approach, which increases bond allocations as age increases, has proven to be problematic at best. Rising interest rates have tanked many conservative, bond-ladened portfolios over the past 2 years.  Alternatively, exposing a mature portfolio to the broader equities markets means risking potential market crashes, which, historically speaking, are long overdue. Preservation of investable assets without losing ground to inflation or taking undue risk, has become a formidable challenge in the last few years. 

There is another challenge in wealth preservation that gets far less attention but may be an even bigger threat…. skyrocketing taxes in retirement.

Most of the retirement savings assets in the U.S. currently reside in tax-deferred accounts. Nobody knows what portion of these assets will be consumed by the federal taxes as distributions are taken. How can anyone know if they have enough money to retire when they literally do not know what portion of their tax-deferred accounts they will get to keep? 

How serious of a threat are taxes? 

Consider the following data from the Congressional Budget Office (

  • The federal government has spent about 120% of their income (taxes collected) year over year for more than 20 years. 

  • The lion’s share (~90%) of the federal budget is now spent on these four federally mandated programs/areas: 1. Social Security, 2. Medicare/Medicaid, 3. Interest of the national debt & 4. Miscellaneous entitlement programs. 

  • These programs’ expenses are rapidly accelerating. 

Some experts, like David Walker, former Comptroller General of the US, believe that taxes will have to double to right the ship. Any thoughtful wealth preservation strategy must seriously consider the impact of skyrocketing taxes in the coming decades. 

Addressing the two threats of market crashes and skyrocketing taxes are essential for anyone concerned with wealth preservation. Strategy recommendations for addressing these two threats is beyond the scope of this article, however, I would suggest working with a Certified Financial Planner™ who has decades of experience and is operating in an independent registered investment advisory firm. The importance of a comprehensive financial plan that integrates your investable assets, real estate, tax liabilities (short and long-term) and estate planning needs is greater than ever before. | (208) 376-0091 | Advanced Financial Solutions

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