The ‘Big Three’ Risks to Your Wealth-Building & Retirement
The view from the plane as we flew onto Mt. Denali for a May, 2017 attempt is burned into my memory. The long sprawling glaciers occupying the lower mountain, littered with hundreds of 2,200-foot-deep crevasses, bore the ‘Big three’ dangers quickly to mind: slip-n-fall, crevasse fall, and avalanche, in that order. This was the culmination of a dozen years of dreaming, praying and planning; these risks were present, and those crevasses looked like big hungry mouths to me! Accumulating real wealth, meaning wealth that is increasing after taxes and inflation, sufficient to fund a potentially long and expensive retirement in a high inflation society comes with its own ‘Big Three’ hazards: inflation, tax hikes, and the high cost of care late in life, in that order. Consider the landscape of these risks as you find great solutions in the planning of your own financial future:
The Fed systematically creates inflation to fund government deficit spending, and then understates it so government payments rise slower than real inflation. Wealth production requires an after-tax return greater than real inflation, not achievable with a 5% CD or Money Fund. Many Americans are watching their bank account values grow, but their real (after taxes and inflation) wealth grows not! Real wealth production requires risk taking and exposure to the asset classes that have performed best during inflationary times: real estate, high quality stocks, and other hard assets. Be sure to maintain liquidity, manage risk, and take a long-term view with invested assets.
Be convinced it is inflation you fight, not deflation. Thousands of middle-class families have been impoverished for lack of understanding this. The primary enemy is not volatility, but Federal Reserve Notes, and anything easily converted into them. Be liquid enough to handle prolonged volatility but fear the ‘Notes’. It is logical in inflationary times that high quality assets, especially when producing a stream of present income, should cost more Notes, not fewer to buy.
Retirement account values are high, tax rates are historically low, and budget deficits are unhinged. Never has it been more important for Americans to have a smart long-term tax plan.
The “Tax Cuts and Jobs Act” is set to expire December 31, 2025, after which income tax rates may rise. The assumption of retiring to a lower tax bracket may be faulty, and the IRS is co-owner of all traditional retirement accounts. Choose to pay more taxes at lower rates, pay less taxes at higher rates, and minimize lifetime taxes by: a) understanding the taxability of your Social Security payments, b) utilizing a non-retirement brokerage account for annual tax-posturing and tax-loss harvesting, c) considering “Backdoor” and strategic annual Roth Conversions, d) factoring future RMD’s into your tax and retirement plans, e) participating in Qualified Charitable Distributions and f) a Health Savings Account, and g) aggressively funding traditional accounts in high-income years.¹
Commit the issue of the care you will require as the older body breaks down to your thinking. Think about where you will receive this care, from whom, how it will be funded, and the implications to your loved-ones. Your personal Plan of Care will likely be multi-faceted, so be patient, keep notes, and stick with it.
Warren Buffet and others contest the most important aspect of investing is “avoidance of a catastrophic loss.” The ‘Big Three’ dangers on Denali formed a prism of risk awareness, and then risk mitigation, that proved most helpful to our team. Use your knowledge of inflation, the probability of future tax hikes, and the high cost of care late in life to sharpen your financial plan.
Think about it, Shaun.
“But my God shall supply all your need according to his riches in glory by Christ Jesus.” ~Philippians 4:19
1 Smart Asset, “5 Tax Strategies for Your Retirement Income,” July 12, 2024
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks, including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author.
https://www.fivestarprofessional.com/spotlights/90982
Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.