Wealth Creation Strategies: Planning for Financial Security and Better Retirement

Wealth Creation Strategies: Planning for Financial Security and Better Retirement
Prof. James Gaius Ibe, Ph.D., CAE.

Life expectancy is getting longer for most people. However, the usual sources of retirement benefits-government and employers are getting out of that business. Therefore, individuals must now more than ever take full responsibility for their own financial security and a worry-free retirement. Wealth is like a tree that bears edible fruits. You plant the seeds, nurture them, and they bears fruits. You carefully separate the seeds from the fruits. What you may eat are the fruits. You plant the seeds again and wait for the next harvest. If you discard the seeds, fail to separate the fruits from the seeds or to plant the seeds again, you should not expect another harvest. If you learn this metaphor and teach them to your children, then you, your children and grand children can expect many harvests. In finance we have fancy names for this process-savings, investments, dividends and dividend re-investments. Wealth and poverty transfer from generation to generation. However, while poverty transfers automatically, wealth requires careful planning. People generally do not plan to fail, they fail to plan.

Effective wealth creation strategies consist of at least three components: personal finance planning-savings and investments, risk management-tax avoidance and insurance, and estate planning-retirement and asset preservation. Please consult a competent professional for specific advice. The following are some general guidelines for wealth creation and planning a better retirement:

1. Set your retirement financial goals: Decide how much you need to retire in comfort consistent with your values. Draw up a retirement budget to make sure your plans are realistic as possible. There are financial calculators at bloomberg.com or kiplinger.com to assist you to determine how much you need to set aside now to attain your financial goals at retirement.
2. Find additional money to invest: Develop a monthly budget and live within it. Effective cash flow management requires that you track all monthly income and expenditure. Identify “frivolous” expenses and divert any extra money into your retirement portfolio.
3. Begin saving and investing early and often: Starting early, saving and investing as often as possible will prevent more inordinate financial sacrifices to attain your retirement financial goals later in life as you get closer to retirement. The earlier you start the smaller and easier the required contributions to your retirement portfolio to attain your set goals.
4. Protect your retirement nest egg: More people are living longer as health and nursing home insurance premiums are increasing rapidly. Long term care contracts (insurance) may be necessary to protect your retirement savings from catastrophic health expenses. Younger and healthier people should seriously consider the Health Savings Account (HSA) as part of their portfolio.
5. Guaranteed income for life: A sensible use of fixed annuities may assist to ensure that your retirement savings will be with you for a long time. Instead of a lump sum, your insurance company guarantees you a monthly check for the rest of your life. Additionally, consider reverse mortgage which converts the equity in your home into a steady stream of tax-free income.
6. Participate in your employer’s retirement plan: Most employers have retirement plans that match employee’s contributions. The long-term power of tax-free compounding is one of the secrets of wealth creation. Begin as soon as you become eligible to participate. You may be able to use Individual traditional Individual Retirement Account (IRA) or Roth IRA to set aside additional funds toward your retirement.
7. Estate Planning: Creating wealth is important to ensure that you retire in style. However, effective wealth preservation strategies are crucial to ensure that your survivors do not face financial hardship once you pass on. It is not wise to leave the interests of the dead to the benevolence of the living. Begin with a will to document your intentions regarding your assets.

Update: The personal bankruptcy law has changed since the last article. Please see a summary of major changes to personal bankruptcy law at AbiWorld.net.

ABOUT THE AUTHOR: Dr. James Gaius Ibe is the Principal-at Large of the Global Group, LLC-Political Economists and Marketing Management Consultants. He is also a senior Professor of Economics, Finance and Marketing Management at one of our local universities.