They say the only constant in life is change. Whether it’s graduating from school and entering the workforce, buying a home and starting a family, or preparing to enter retirement, our life circumstances are constantly evolving. As they do, so do our financial circumstances and wealth-planning stages.
Throughout all of these changes, effective wealth planning can help you secure your financial stability and legacy. But with greater longevity and uncertain financial landscapes now adding to the complexity of wealth planning, the process may feel overwhelming.
That’s why in this article, we’ll discuss the three stages of strategic wealth planning, key considerations as you move through them, and how to help ensure that your goals are met every step of the way by working with a trusted advisory team.
The Evolution of Wealth Planning
The process of wealth planning has evolved over the years due to demographic shifts and rapidly changing financial landscapes.
People are living longer than ever before, for reasons such as population growth, improved public health, and medical advancements. The number of Americans 65 and older is projected to increase 47% from 58 million in 2022 to 82 million by 2050. This also means the 65-and-older age group’s share of the total population is projected to rise from 17% to 23%.
At the same time, the cost of living has been increasing. The Social Security Administration’s annual cost-of-living adjustment (COLA) measures how much monthly Social Security benefits change to account for inflation so that recipients can maintain the same purchasing power. According to historical data, the COLA average over the past 20 years is about 2.6%. However, it spiked to 8.7% in 2023 — the highest it’s been in over 40 years — and while this number has started to dip back down, it is still above average at 3.2% in 2024.
These trends mean that strategic wealth planning must focus on the long term. With people living longer into their retirement years and dealing with higher costs of living, effective wealth planning and management becomes even more critical.
The 3 Key Stages of Wealth Planning
Do you know where you stand in your wealth planning process? As we live longer, it becomes increasingly important to be able to identify what stage of wealth planning we are in and communicate that candidly to our advisors.
There are three key life stages to wealth planning and management: accumulate, protect, and transfer. This frame of reference can help wealth holders and their advisors quickly get on the same page so they can start working towards the same goals. As changes occur to health, family, financial situations, tax laws, and more, this framework for timely communication becomes even more important.
Accumulation Phase
In this stage of building wealth, you are accumulating money, property, and other assets. There are various ways to accumulate wealth, such as working, saving, investing, asset growth, and getting an inheritance.
Protect Phase
As you accumulate wealth, you will likely also accumulate bank accounts, retirement funds, stocks, bonds, property, etc. With this stage comes the desire to “protect” these assets and not create a deficit that would return you to the accumulation phase.
Transfer Phase
The third and final stage is when your wealth is transferred to the “someone” or “something” you care about. This process may begin during your lifetime in the form of gifts to loved ones or donations to charitable organizations, or after you pass away through estate planning.
Assessing Your Wealth Planning Stage
What wealth accumulation phase of life are you currently in? Is this where you want to be? Are there gaps you would like to close?
Perhaps this is the first time you are formalizing a strategic plan and are just starting on your wealth accumulation journey. Or maybe you’re revising an existing plan to adapt to new circumstances. Either way, deciding what stage you are in is ultimately up to you, not your advisor or anyone else. There are no set milestones for when a wealth holder moves from one stage to the next, and each individual takes their unique path based on personal goals, circumstances, and life events.
The planning process truly begins with identifying any gaps between where you are and where you want to be, and then putting a strategic plan in place to close those gaps. To do that, you need to identify what stage of wealth you’re in now and your future objectives.
So, the first step in assessing your wealth planning stage is to take stock of your current financial situation. Even if you’re not quite where you’d like to be, it’s important to take an honest look at where you stand so you can set realistic and attainable goals. If you find yourself struggling to determine your wealth planning stage or set those goals, working with an advisor can help simplify these processes.
Key Considerations at Each Stage
As you move through these stages, the considerations and challenges faced during each stage will evolve.
Accumulation Phase
There is no “one-size-fits-all” approach to wealth accumulation. For some, this phase of life occurs more quickly through work, investment, and/or inheritance. Others may take a slower path, replete with peaks and valleys, good years, and not-so-good years. This is natural as your ability to save or invest your income will fluctuate as you experience life events.
Your goals can also change as you move throughout the accumulation phase — it could be to buy a starter home, then once that goal is met, shift to enhance your lifestyle, care for loved ones, or expand your charitable giving. The financial tools and strategies you use as you accumulate and manage your wealth will also evolve as your overall financial stability, goals, timeframe, and risk tolerance do.
Whether you’re just starting your wealth accumulation phase of life or continue to feel that there is a gap between where you are (financial dependence) and where you want to be (financial independence), you may identify as being in the accumulation phase. This is the opportune time to start setting short-term financial goals and practicing habits that will lay the groundwork for long-term financial well-being. It can be helpful to initiate a meeting with a financial advisor before you begin the process of accumulating assets or to enlist their help if you’ve found yourself stuck in this stage or want to implement best practices with the guidance of an expert.
Protect Phase
Once you’ve accumulated wealth and established a financial foundation, it’s time to preserve those resources. At a base level, key considerations here are to avoid spending beyond your means and take advantage of compounding interest early on. You also want to ensure that your funds are diversified to protect your wealth from market volatility — or don’t put all your eggs in one basket, so to speak.
This stage requires more sophisticated financial planning than the accumulation phase and strategies can vary widely. Working with an experienced advisor can help you uncover your specific needs and determine the solutions that would work best for you. In addition, they can help you navigate complex tax laws, manage properties, align your investments with your savings goals, and more.
A great advisor will not only help you preserve your wealth in this protect phase, but continue to grow your money as you look toward the next stage of wealth planning: the transfer phase.
Transfer Phase
This movement of wealth from one person to another could be facilitated through trusts, wills, life insurance, and other estate planning tools. These approaches all have various taxation rates, interest rates, risk levels, etc. An advisor can help you navigate these complexities and help create a plan for you.
The thing is, there’s always a plan here regardless. If you don’t make an explicit wealth transfer plan during your lifetime, the government already has one in place for you when you pass. The wealth you leave behind will be divided between your family and, possibly the government, in the form of taxes.
But you can choose to have control over when and to whom your wealth is transferred. Through proactive planning and guidance from an expert advisor, you can have greater peace of mind that your wishes will be followed.
The Importance of Flexibility and Adaptability
Keep in mind that wealth planning is not a one-time event; it is an ongoing process. Life is ever-changing. Our work circumstances, health, family situations, and the rules and regulations that govern our wealth are constantly evolving. This means being adaptable is key. As circumstances change, an adaptive mindset gives you the freedom to make new decisions without additional stress.
While we oftentimes cannot plan for life-changing events, you can still make proactive choices to help build flexibility into your wealth planning process. If you’re working with an advisor, they will keep an eye on financial landscapes, regulations, and best practices and then can make adjustments to your plan based on potential upcoming changes. Having an advisor in your corner also makes it faster and easier to regularly review wealth plans and make adjustments as needed.
Assembling Your Advisory Team
Whatever you envision for your wealth planning journey, it’s important to have a trusted advisory team in your corner who shares and supports that vision. However, putting together the right team can be challenging. Members of your team should not only have the right professional abilities, certifications, and experiences but also have the personal qualities you’re looking for. Are they reliable and trustworthy? Do you feel comfortable talking with them about your finances and goals? Are your core values aligned?
As you assemble your advisory team, be sure to thoroughly evaluate each candidate. As a starting point, you can look at their website, read through online reviews, and ask to see personal references or client testimonials. This initial information can be used to weed out candidates who don’t meet your requirements.
Then, once you’ve narrowed the search, you should interview each potential candidate. Develop a list of questions before you begin this process to ensure you don’t forget to cover all the things that are most important to you. Some sample questions you might want to ask while interviewing advisors include:
What is the mission of your firm? What values are most important to you and your team?
What is your communication style?
What is your current client load like? Do you feel you will have adequate time to meet my needs?
What licenses and registrations do you have? Are you a member of any trade associations?
Can you provide any relevant references or letters of endorsement?
Your advisory team may be made up of various experts in their respective areas — for example, you may have one financial advisor focused on your investment portfolio, a dedicated tax accountant to help you find and implement tax-efficient strategies, and an estate planning attorney to oversee your trust planning.
These individuals each play a critical part in helping you achieve your overall financial goals, so your advisory team must have open communication. Each member should know one another and what their respective roles are. Be mindful of any conflicts of interest when assembling your team, and once they are together, be clear about what parts of the process you will handle yourself and what you expect from each of your advisors.
Take The First Step To Secure Your Financial Future
While there is a lot that goes into wealth planning, it’s important to prioritize this process so you can secure your financial stability and legacy. In summary, it’s all about 3 C’s: Clarity ● Confidence ● Coordination!
Once you have clarity on your current stage of wealth planning and future goals, your team can openly coordinate to bring forward the best ideas for achieving those goals and design a process for you to make wise choices with confidence.
If you are ready to start or review your wealth planning journey, take the first step towards securing your financial future! Contact our team of experts today.
Read the full video transcription
Celeste:
If you are turning 65 today, you have almost a 70% chance of needing some type of long-term care services.
Over the past few years medical care inflation has nearly doubled that of regular inflation. Many of us may have experienced a long-term care event through a family member or friend and have personally seen just how impactful it can be – both emotionally and financially. For this reason, long-term care insurance is now at the center of many planning conversations.
However, many high net worth individuals, who can potentially self-insure, tend to overlook the benefits long-term care insurance can provide.
Even if funding a long-term care need is not a concern, there are other reasons it should be considered. One reason could be a lack of liquidity.
High net worth does not equate to a high level of liquidity. Liquidating assets may be expensive and could involve taking a loss or facing tax consequences. This could potentially jeopardize overall financial planning strategies. Therefore, the need for long-term care insurance may come down to liquidity, and not net worth.
Another reason might be insuring their portfolio. While incurring the long-term care costs may not be an issue. What may be problematic is the timing of the event. If the need occurs during a market downturn, withdrawing funds for care could have a much more adverse and prolonged impact on their overall portfolio.
Especially if there’s an extended health care event such as Alzheimer’s or other cognitive impairment. Additionally the cost of care may look very different for a high net worth client who’s accustomed to elevated lifestyles which leads to increased risk to their portfolios.
So Carolyn, instead, why not leverage an insurance company and allow them to absorb some of that risk while the market recovers and in turn preserve their portfolio from that deterioration?
Carolyn:
Celeste, I couldn’t agree more. In fact, 26 years ago in order to encourage personal responsibility for future long-term care needs The Health Insurance Portability and Accountability Act of 1996 was signed into law. In general, it provided that the income from a qualified long-term care insurance policy is non-taxable and the premiums may be tax deductible.
The tax deduction will depend on whether you’re paying as an individual, employer, business owner, etc., so please always review your situation with your tax advisor. What is not readily known is that qualified long-term care premiums may be paid from a health savings account.
And since qualified long-term care premiums qualify as a medical expense they do not reduce the annual gift tax exclusion. If you happen to be paying the premiums for someone else, note in both of these situations there are age-based limits that apply. The key message is that 26 years ago tax benefits were added to the tax code testifying to the vital social importance of this planning. Long-term care policies have come a long way and many are no longer “use it or lose it,” instead offering flexible benefits that can be accessed in various ways.
Personally, Todd and I have both experienced the responsibility for caring for a loved one. Thanks to the variety of services that can be funded by a long-term care policy, we both saw the additional support and assistance that a policy provides during what easily can become an overwhelming time for the insured in their family. Celeste, I’m sure you’ve seen how that affects the client’s portfolio.
Celeste:
Absolutely. And you know long-term care planning should not be dictated by a person’s net worth, but instead be considered as a risk management and asset protection tool that can be strategically utilized for clients at varying levels of wealth.
Most high net worth clients have a legacy plan in place which dictates how they want their assets to be distributed at their death. An unplanned or extended long-term care event could impact these plans.
Monies they plan for family members, or their community, may now go to the health care system. Instead, let’s help your clients develop a plan that keeps them in control of their assets, protects their legacy plan, and allows them to transfer their risk in an efficient manner.
At C3 Financial Partners we look forward to helping your clients gain clarity in their goals and objectives, confidence that they’re making the right decisions and coordinating with you and your client’s other advisors.
