4 Dangers of Accumulating Wealth
Generally, when we think about accumulating wealth, we view that as a good thing. Who doesn’t want a nice, comfortable nest egg? But as with all things in life, there is a downside to having a healthy bank balance. Yes, really!
You can overestimate yourself. If you do manage to stash a comfortable amount of money in your retirement fund, you probably envision yourself retiring happily and doing whatever your heart desires for the rest of your life. Unfortunately, you can’t allow yourself to become too confident about your future purchasing power.
Sure, you’re better off than the guy who never bothered to save for retirement, but inflation is going to greatly impact your lifestyle. Whatever amount of income you withdraw during the first year of retirement is unlikely to feel as comfortable 15 or 20 years from now.
You become a bit of a target. It’s an ugly fact of life, but having money in the bank can make you a target for lawsuits. For example, if you get into a car accident and your insurance doesn’t cover the other driver’s damages, a shrewd lawyer might take you to court over it. They probably wouldn’t bother filing a lawsuit against someone who can’t afford a comfortable settlement. A personal liability umbrella policy is often a good solution for those at higher risk of lawsuits.
You’re going to pay more in taxes. Income taxes are based on, well, income! And the more you earn, the more taxes you pay. However, a solid financial plan can help you to avoid excessive taxation. There are ways to invest that money so that you keep your taxes low. Also, don’t overlook state taxes. These can vary considerably depending upon where you choose to live once you retire.
Your estate might be subject to “death taxes”. Your heirs could face enormous estate taxes after your death, unless you put together a smart estate plan to avoid them.
Now, we’re certainly not saying that wealth is a bad thing! But it does come along with some unique challenges. In order to avoid these and other pitfalls, regular communication with your financial advisor is key. Stay in touch with us now and throughout retirement, and we can help you structure your income in the most beneficial way possible for you.