How to make sure your wealth lasts a lifetime -- or more

Wealthy Old CoupleGetty Images / Tim GrahamEnsure that your wealth continues to last and grow, even in retirement.

Starting your retirement savings accounts is just half the battle — sure, it’s a great first step, but a lot more goes into growing and sustaining your wealth than just contributing to a 401(k) or IRA.

Things like taxes and investing fees can quickly eat away at your retirement savings. Plus, how should you change your financial habits once you’re no longer working full-time and have a steady income? How can you set your children up to benefit from your lifetime of hard work?

Here are seven strategies to consider to ensure your wealth lasts a lifetime … or two:

This article was written by Business Insider without the involvement of Merrill Lynch.

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Time is on your side when you're young.

Plan as far ahead as possible.

We've all heard it before, but time is your biggest asset when it comes to investing in retirement accounts -- thanks to compound interest, the earlier you can start saving for retirement, the better off you'll be.

Another crucial part of the planning process is estimating how much you'll need to live on each year in retirement, depending on how you envision your future lifestyle and how much you plan to gift to family members or charity. If you plan on travelling a lot, for example, you'll likely need to save more money.

'To get to your number, you need to determine how much income you think you'll need to live on each year, based on your retirement lifestyle goals, then multiply that by the number of years you expect to be retired, writes certified financial planner Matt Shapiro. 'And if you don't yet know how you envision your future retirement lifestyle, consider basing your calculations on the assumption that you'll need to replace 85% of your income in your golden years.'

Another good starting point is to use a retirement calculator that can help pinpoint how much you'll need to retire by your target age. Once you determine a number you're comfortable with, you can set up a savings plan for how you're going to get there.

Note that many experts recommend using investment vehicles in addition to your employer's retirement plan. 'With the grim outlook on the future of Social Security and pension plans becoming a thing of history, relying on your employer's retirement plan to fund your golden years may just not be enough anymore,' explains Atlanta-based investment analyst Thomas Walsh to MainStreet. 'Contributing to an employer plan such as a 401(k) is a great start for retirement saving, but the more you can save for the future, the better.'

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When you're close to retirement, you'll want to revisit your portfolio.

Revisit your investments regularly.

You can't just 'set and forget' your investments forever. Once you're close to retirement, it's smart to make financial adjustments, as the original portfolio you created may no longer suit your needs.

For example, as you're nearing retirement, you may not have time to wait for the market to recover from downward swings, and you may want to consider a less aggressive portfolio.

Adjusting your portfolio to fit your current situation is called rebalancing, and Investopedia explains it nicely.

It's also important to be aware of how much you're paying in fees on your retirement savings -- ultimately, it could cost you upwards of $100,000 over a lifetime to maintain your retirement savings.

A good place to start is with Stronghold's free portfolio checkup, which allows you to link your investment accounts and see exactly how much you're paying in fees, and how much you could save with a different portfolio.

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Saving for retirement is just half the battle -- taking out your money also requires planning.

Have a plan for taking your money out of your retirement accounts.

Once you retire, the challenge is no longer contributing as much as possible towards retirement accounts -- the challenge becomes getting that money out with minimal tax consequences.

'When it comes to retirement, it is so important to get that money out of the retirement accounts as tax-efficiently as you possibly can,' emphasise Gary Plessl and Kevin Houser, certified financial planners and managing partners of The Houser and Plessl Wealth Management Group.

'We see so many situations where people get into retirement, and any time they need one dollar from their IRA or 401(k) accounts, they need to worry about tax consequences,' Plessl and Houser tell Business Insider. With 401(k) and traditional IRA accounts, the money goes in tax-free, meaning you'll have to pay taxes when it comes out. And your money can't grow tax-deferred forever -- you have to start taking it out by age 70 1/2.

'A lot of people will let their money grow tax-deferred as long as they possibly can, to age 70 1/2. The problem at that point is that once the required minimum distribution starts, they end up being forced to take more money than what they necessarily need at that point, and they get thrust into a higher tax rate,' explain Plessl and Houser.

Contributing money is just half the battle -- it's equally important to come up with a plan for how to take your money out without losing thousands of it to income taxes. The tax rules are complicated, so it may be smart to consult an adviser or expert -- just make sure you have your tax returns handy, Plessl and Houser emphasise, so that you get the advice you need for your individual situation.

It's also important to note that if your spouse dies, that significantly changes your tax situation -- it puts you in a higher tax bracket, Plessl and Houser explain, which makes it even harder to get money out tax efficiently.

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Prepare for surprise expenses.

'Whatever you think you're going to need, you're going to need more,' explain Plessl and Houser. 'There are always going to be things that pop up, and there are always going to be surprises.'

One of the biggest wild cards when it comes to expenses is dental care, they explain: 'It's something that not too many people think about, and without dental insurance, you could end up with a $3,000 t0 $5,000 surprise dental expense.'

You won't want to tap into your investments to cover an unexpected medical bill or home repair, so it's important to have an established emergency fund. Read more about a smart amount of cash to keep in retirement at TIME.


Watch your spending and consider downsizing.

Overspending doesn't just plague 20-somes earning their first paycheck. It's easy to spend a bit too much during your first few years of retirement -- particularly on vacations, Plessl and Houser note, as people want to travel while they're still healthy.

'Towards the end of retirement, another common theme we've found is that when one spouse passes away, the surviving spouse tends to spend more, simply because they're overcompensating,' they explain. 'Across the board we tend to underestimate what we spend and overestimate what we have. It's important to be realistic about your expenses.'

It may also be smart to consider downsizing. A smaller home or less expensive neighbourhood could save you hundreds of dollars each month. Remember: You can always downsize before you retire to get a jump start on savings.

Chung Sung-Jun/Getty Images.

Gift your kids money strategically.

If you're planning on leaving your kids a generous amount of money in your will, the federal estate tax may eat up a large chunk of their inheritance.

To avoid losing a fortune of your money to taxes, you can whittle down your estate by gifting some of that money tax-free while you're alive. For instance, you can gift a child $14,000 a year without even declaring it to the IRS, and your spouse can do the same. For more guidance on strategies to gift your kids money, read up on how to pass along your cash without losing half of it to income taxes.

Strategic gifting is particularly important for those who have an 'estate' (your money and property) that exceed $5.43 million -- any estates worth more than that will be taxed, up to a whopping 40%.

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The earlier you start instilling money lessons, the better.

Teach your kids about money.

If you truly want your money to last a lifetime, or two, you'll want to pass smart money habits along to your kids, especially if you're planning to pass along money, assets, or your business to them.

The earlier you start teaching the basics, the better. Every kid learns at a different pace, but you can start laying the groundwork as early as 5 years old.

Read up on the most important things to teach your kids about money and how to do it effectively.

This article was written by Business Insider without the involvement of Merrill Lynch.

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