Wealth Creation vs. Wealth Preservation

As you approach retirement, a new financial dilemma emerges: Should you focus on wealth creation or wealth preservation? While both objectives are essential for a secure retirement, striking the right balance between the two can be challenging. 

Retirement planning includes increasing income, saving diligently, investing wisely, and taking calculated risks to grow wealth. While it might involve higher-risk investments, such as stocks and businesses, the potential for substantial returns comes with increased volatility.

As a pre-retiree close to your golden years, this phase entails transitioning from high-risk, high-reward investments to more stable and conservative options, prioritizing capital preservation and a steady income stream to cover living expenses during retirement. 

This blog will explore the differences between wealth creation and preservation and discuss their significance for retirees. Here’s what you should know.

Wealth Creation: The Building Phase

Wealth creation involves the process of generating and accumulating assets over time. Throughout your working years, you may strive to increase your income and take calculated risks to grow your wealth. This approach often involves higher-risk investments, such as stocks or real estate investments which offer the potential for significant returns but have a higher likelihood of volatility.

When it comes to nearing retirement, wealth creation takes on a new dimension with strategic management of financial resources during the retirement phase. According to a 2023 report from Northwestern Mutual, Americans are taking essential steps to build their savings. However, roughly only half of them are putting savings first.

A common misconception is that retirement means the end of financial growth. This couldn't be further from the truth. Retirees still have ample opportunities to enhance their financial standing through careful investment and asset allocation decisions. Although the focus shifts from high-risk to more stable investment options, the growth potential remains. Let’s look at how wealth preservation can be an added benefit to wealth creation.

Wealth Preservation: The Protection Phase

Wealth preservation is a crucial aspect of financial planning that aims to safeguard the assets and financial security achieved during the wealth creation phase. As retirees transition into this phase, they shift their focus from high-risk, high-reward investments to more stable and conservative options. The primary concern is capital preservation, as they seek to reduce exposure to market fluctuations and ensure a steady income stream covering living expenses throughout retirement.

According to a Forbes Advisor survey conducted in March 2023, it is evident that some retirees are taking steps to preserve their wealth. For example, 48% of respondents have opened a high-yield savings account, with 41% doing so to take advantage of interest rate hikes. 

To help protect your lifetime savings, employ common wealth preservation strategies, which include diversifying into lower-risk assets like bonds, CDs, real estate, and dividend-paying stocks. 

Additionally, you may consider other insurance products that provide guaranteed income for life, helping to shield you from the potential risks of outliving your savings. These well-thought-out approaches to wealth preservation offer retirees the peace of mind and security needed to enjoy a worry-free retirement.

The Balancing Act

Retirees often face a delicate balancing act between wealth creation and wealth preservation. While it is essential to maintain some exposure to growth assets to combat inflation, excessive risk-taking can jeopardize the financial security you’ve worked so hard to achieve. Let's look at how to find harmony between wealth creation and preservation.

  • Assessing Risk Tolerance: As you approach retirement, it is crucial to reassess your risk tolerance. A significant market downturn during retirement can severely impact your portfolio's value, potentially derailing your financial plans. Working with a reputable wealth manager can help determine an appropriate asset allocation that aligns with your risk tolerance and retirement goals.
  • Diversification: The age-old adage of "not putting all your eggs in one basket" becomes even more relevant in retirement. Diversification across various asset classes can help spread risk and minimize exposure to market volatility. This diversified approach aims to capture growth while cushioning against significant losses.
  • Regular Portfolio Reviews: Retirement doesn't mean the end of financial planning. Regular portfolio reviews with a wealth preservation manager can ensure that the investment strategy meets changing financial circumstances and market conditions.

To navigate this delicate balancing act between wealth creation and wealth preservation effectively, expert advice and guidance can go a long way in helping to secure your financial future. 

Working with NJM

When financial choices carry significant weight during retirement, partnering with a wealth manager is a wise move. The complexities of wealth management may appear overwhelming. Still, with the assistance of a trusted wealth manager, retirees, and pre-retirees can gain invaluable support in achieving their financial goals and finding peace of mind in this crucial phase of life.

At NJM Wealth Preservation Strategies, we understand the importance of investment strategies and planning for your retirement. Our trusted fiduciaries can walk you through your investments, helping to ensure a thorough understanding of your current financial situation and structure a portfolio that aligns with your retirement lifestyle and longevity goals. 

Our service offerings include the following:

With our experience and personalized approach, we can help you balance wealth creation and preservation as you enter this exciting phase of life. 

Final Thoughts

Wealth creation and preservation form the dual pillars of effective retirement planning. 

During your working years, wealth creation builds a robust financial foundation, while wealth preservation becomes paramount as retirement approaches to maintain your desired lifestyle.

Contact us today to learn how we can help you preserve and grow your wealth for a secure and comfortable retirement.