Financial Advisory: Top Four Money Demolishers (and Strategies to Safeguard Your Wealth from Them)

Financial Advisory: Top Four Destructive Forces Affecting Wealth Accumulation (and Strategies to Safeguard Your Financial Resources)

D. Scott Kenik is the head honcho at Wealth Concepts Group, LLC.

The journey towards financial stability isn't always straightforward or hassle-free. Bumps, diversions, and cul-de-sacs are all part of the package.

Alas, I can't point to one singular destroyer of wealth, as multiple contenders may show up. The big three threats to your fortunes are market volatility, taxes, and administrative costs. But lately, a fourth relentless foe has been making retirees' accounts shrink: inflation.

Wealth Destroyer No. 1: Market Volatility

Let's start with the granddaddy of all wealth destroyers: market volatility. As I pen these words, we're going through one of the longest bull markets in history. Unfortunately, this means that the recent memory of losing a substantial portion of your wealth within just days may not be fresh in your mind.

While it's true that markets have historically recovered from crashes, this recovery often takes several years. During those wait-and-watch years, you're not really earning any profit; you're just returning to your original investment level. That means you're passing up on potential income – a significant missed opportunity.

You may have heard the old saying, "It's only paper losses. The stock market will bounce back." This might be true, but once the market starts climbing again, your initial investment – your source of profit – may no longer be as substantial as it once was. So much for a smooth recovery.

Wealth Destroyer No. 2: Taxes

The second-largest wealth destroyer is taxes.

Retirement accounts like 401(k)s, IRAs, and other qualified plans grow tax-deferred. That means you contribute pre-tax funds, and you only pay taxes on the withdrawals you make. Essentially, you're just delaying the tax payment, not entirely avoiding it.

But will the tax rate still be the same when you withdraw your money 10, 20, or 25 years down the line? Let me remind you that we've seen escalating government spending for decades, and things don't seem to be slowing down anytime soon. The national debt is at an astronomical high, and it's only climbing. Are taxes likely to go up? If so, you might end up paying more than you anticipated.

You might argue that you've been told it's better to pay taxes later, when you're retired and in a lower tax bracket. But do you really want to live on less income during your retirement than you had while working? My goal is to ensure my clients can enjoy their hard-earned savings, so I aim to preserve their retirement income, not deplete it.

If you've saved and invested wisely, your retirement assets, along with Social Security benefits, should provide you with an income similar to what you had when you were working. This means your tax bracket should hardly change – and that, of course, should be your goal.

Wealth Destroyer No. 3: Administration Fees

Now we arrive at our third wealth destroyer: excessive fees. Suppose you're paying 1% in the advertised price of mutual funds. That doesn't look so bad, does it? After all, isn't it a good deal to get such a diverse portfolio for only 1% in fees?

However, don't forget that over 40 years of savings, these seemingly small fees can add up to hundreds of thousands of dollars in missed returns. Consider the numbers:

A 25-year-old investor starts with a $25,000 balance in their retirement fund
They contribute $10,000 annually
The fund earns an average annual return of 7%

By paying just 1% in fees, this investor could miss out on hundreds of thousands of dollars in potential returns over their 40-year savings journey. To protect your wealth, low-fee and no-fee investment options are necessary. Yes, they do exist.

Wealth Destroyer No. 4: Inflation

Finally, let's not forget about inflation. From 1929 to 2023, inflation ranged from -10.3% to a high of 18.1%. The average is around 3.15%. If we follow that trend, a $100 bill in 20 years would be worth approximately $52. In simple terms, with each 20-year period, the cost of living will roughly double. This means that to maintain the same purchasing power, your retirement income will need to nearly double as well. To simply keep up, not get ahead.

Protecting Your Wealth from Destroyers

The battle to secure your financial future requires strategic planning. With inflation, market volatility, taxes, and high fees constantly threatening to undermine your efforts, what can you do to ensure you don't outlive your resources? Fixed indexed annuities can help address these challenges.

Market volatility: Fixed indexed annuities (FIAs) promise market gains with no market risk. Your investments are tied to the performance of the stock market, but without actually investing yourself. They have a no-loss floor, ensuring that you won't lose money even in the event of a market crash.

Taxes: FIAs are tax-deferred, and some offer Roth conversion options.

High fees: FIAs come in no-fee and low-fee versions.

Inflation: Well-designed and allocated FIAs can offer attractive returns that can outpace inflation.

While these advantages are notable, there are some considerations to bear in mind with FIAs: Annuities have minimum premium thresholds that fluctuate by insurer, normally settling between $10,000 and $25,000. Generally, there's a complimentary withdrawal period during the early years, often permitting a 10% no-cost withdrawal within the initial decade. However, excess withdrawals might lead to a charge. The allowed withdrawal quantities and duration can differ among providers. Lastly, advisors secure a commission from the banking institution; hence, fees won't be billed to you, unless your consultant charges extra for their services.

As you approach retirement or are already in this phase, it's crucial to shift your approach from growth with risk to protection and income generation. FIAs can potentially accomplish this goal.

Please note that the information presented below does not function as investment, fiscal, or tax guidance. It's suggested to consult with a competent expert to receive advice tailored to your unique situation.

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D. Scott Kenik, as the head honcho at Wealth Concepts Group, LLC, might provide valuable insights on how to protect your wealth from destroyers like inflation, market volatility, taxes, and high fees when planning for retirement.

Considering the escalating government spending and potential tax rate increases, it's essential to plan for higher tax payments in retirement to avoid depleting your income. D. Scott Kenik and his team at Wealth Concepts Group, LLC, could offer strategies to maximize the value of your retirement accounts and preserve your wealth.