Strategies for Wealth Preservation: How to Protect Your Financial Future (2024)

Wealth preservation is an essential but often skipped step between wealth creation and wealth transfer. Whereas wealth creation focuses on high-yield or long-term investments for cash flow, wealth preservation helps protect investments so they can be passively managed, appropriately withdrawn, and protected from inflation.

Proper wealth preservation protects the value of your assets through various financial management and tax strategies. Depending on your goals, employing all or some of these strategies will benefit your current and future self, and even help you build a nest egg for loved ones or a favorite cause.

"The goal of having good finances is not an accumulation race but a journey to achieve financial wellbeing," said Elaine King, certified financial planner and founder of Family and Money Matters. "The way to achieve it is investing your time in good financial habits that little by little will grow to allow you to do what you want with your money."

Whether you’re early in your career or approaching retirement, here are six essential strategies to make your money last:

6 Wealth Preservation Strategies

1. Build a Long-Term Financial Plan

Setting financial goals, creating a budget, and regularly reviewing and adjusting a financial plan are the boring but essential parts of wealth preservation. Without a foundation to follow, an unexpected expense or unforeseen loss could require dipping into long-term investments to cover short-term needs.

“The long-term goal is several short-term habits being done repetitively,” says Brandon Norwood, financial planner and owner of Oak City Financial.

Planning is essential because life sometimes goes differently than planned. Your goal should be to make a plan, and then review it at least annually. Goals will be a moving target, shifting with real-life needs. Consistent, long-term financial planning will keep you agile and ready to pivot whenever necessary, Norwood says.

“Money is a tool for achieving your goals,” he adds. “The goal is about what that amount of money allows you to do, whether it’s traveling more or not working. Money is the tool to achieve that.”

Break your plans into short-, medium-, and long-term goals to help you not only plan ahead but also save and invest accordingly. You’ll want the funds for short-term goals more accessible (like in a high-yield savings account, for example), and long-term savings set up to benefit from compound interest and time as much as possible.

2. Diversify Your Portfolio

A diversified investment portfolio ensures that wealth is not reliant on success in only one kind of investment, no matter how safe it seems.

Jeff Rose, the certified financial planner behind Good Financial Cents, says that a classic adage describes the value of diversification: “Don’t put all your eggs in one basket.” He warns that seemingly good investments can change over time and that markets are subject to long-term fluctuations.

A healthy mix of asset classes reduces risk exposure and achieves balanced growth over time. A balanced portfolio may include distribution across real estate, bonds, stocks, mutual funds, and cash savings. This promotes wealth preservation by ensuring that gains continue to increase in value over decades.

Plus, if something changes in one asset, like a sharp reduction in home values, then having more stable assets, such as index funds or bonds, can reduce the risk of large-scale losses for investors and their families, Rose adds.

3. Tax Planning and Optimization

There are a wide variety of ways to minimize tax liabilities, and a good place to start is utilizing tax-advantaged accounts. Tax-advantaged refers to an investment, account, or savings plan that is tax-exempt, tax-deferred, or offers other tax-saving perks.

Especially when building long-term wealth, it’s important to lean on tax-efficient investment vehicles, such as tax-deferred individual retirement accounts (IRAs) or 401(k) retirement plans to minimize the burden of taxes later. There are also tax-efficient mutual funds, tax-exempt bonds, and tax-deferred savings for education and health expenses.

Rose says the Roth IRA may be key when it comes to tax optimization and transfer. While they do not have an upfront tax break, Roth funds can be withdrawn tax-free later in life. For many people, this allows them to plan for predictable withdrawal amounts that will sustain their lifestyle.

Establishing an irrevocable trust can also help you gain estate tax efficiency. An irrevocable trust transfers the assets from the grantor’s control to the beneficiary, reducing the estate’s value reflected in taxes and protecting the assets from creditors. However, be aware that assets put in irrevocable trusts cannot be substantively modified—the grantor no longer owns the assets.

4. Consider Insurance for Risk Management

Identifying potential threats to your livelihood and earnings is a vital part of wealth preservation. Having a healthy emergency savings fund helps, but considering insurance and other risk management options may also provide some “just in case” cushion.

“Your most valuable asset during your prime earning years is your ability to bring in income,” Norwood says. A policy like term life insurance—fixed-rate coverage for a specific period—is usually the first thing people do to preserve and protect wealth.

Disability insurance is another potential tool. Norwood says that, statistically speaking, people are more likely to experience a disability over their working years. Many people have a disability only for a short period, and income replacement can be critical to preserve wealth during that time. Disability insurance usually replaces a percentage of income during times of disability when you cannot do jobs in the field in which you were educated.

“I make sure that the policies that I put in place have something called own-occupation,” Norwood says. “It’s not a matter of if you can do any job; it’s can you do the primary responsibilities of your job?”

Finally, consider who else might depend on you, such as children, a partner, or older family members. Getting whole life insurance policies that extend to spouses or kids until they become adults can provide financial support or security in the event of a tragedy.

For older family members, long-term care insurance can help pay for the cost of home healthcare workers or nursing home stays. This insurance can help ensure that you don’t have to deplete savings and investments to cover these ongoing expenses.

5. Prioritize Estate Planning

Estate planning is an important part of wealth transfer for everyone. Estate planning includes a series of legal instruments that enable a person to pass on their wealth and assets.

Power of attorney, living will, trust, and medical directive documents are the most common estate planning instruments, but it’s also important to consider gifting and financial preparation for heirs.

Informing beneficiaries about what they will inherit and what is needed to maintain that asset is an overlooked step in the estate planning process, Rose says. Research has shown that most wealth is lost by the second generation, which means that inheritors are not as knowledgeable as their predecessors about how to maintain the value of the assets they receive.

“There’s a lot of wealth-transferring strategies that actually work better if you start to transfer your money while you’re alive,” Norwood says.

If you’re fortunate to know that you have money or assets that you don’t need, gifting it while you’re alive can help from a tax standpoint. Giving before death, if possible, can open enriching new bonding opportunities, such as a grandparent buying their grandchild their first car or paying for their school tuition.

“It really all depends on each individual person’s situation and also on what you want to do,” Norwood says. “What do you want your legacy to look like?”

6. Teach Financial Responsibility to the Next Generation

Teaching financial literacy and responsibility to your children and/or others who may be part of your wealth transfer plan is hugely important. A strong foundation of money management will help preserve your wealth once transferred, and will give them the tools to make it grow.

“The most important part of wealth preservation is financial literacy,” Norwood says. Literacy means having a firm understanding of how finances work and how personal tendencies and habits affect wealth accumulation. Often, children will learn to manage money by watching their parents, but they can also mirror behavior; thus, setting an example is key.

“I would teach my kids that they need to save their money and spend less than what they make,” Norwood says.

Teaching your family and loved ones about investments, wealth accumulation, and wealth preservation is critical to seeing the money survive the next generation. This becomes even more important if wealth transfer may involve a business or alternative investments such as vintage cars, high-value wine, gems, or precious metals.

“There’s more than one way to build wealth,” Rose says. “From an education standpoint, these are conversations you want to have because it’s not just the asset that you want to pass on. It’s also the information.”

Wealth Preservation for Business Owners

Though not always a favorite topic of conversation with business owners, business preservation strategies are also important, especially if the founder hopes to pass down the company.

“Have a clearly defined exit strategy,” Rose advises. Just like a will or a trust, planning for the worst-case scenario—however uncomfortable—is crucial to keep a business alive beyond one generation.

Rose says most business owners don’t have time to think about wealth preservation strategies initially, which is why he recommends that entrepreneurs hire a qualified certified public accountant (CPA) and a business attorney to advise on these matters. If you don’t yet have the funds to hire an advisor, start with a succession plan.

A child or family member may not want to take over the business, and finding someone new to take over can be tougher than you anticipate. If there is to be a sale, Norwood says many business owners need to get a proper valuation of their business before determining how much to sell it for. A sale also likely hinges on time.

“It’s a slow progression,” he says. “Normally, it’s a multiyear transition. So it’s not just a one-time transaction.” Business owners may need to transition clients and processes to new owners over months or even years, so the sooner you outline a plan, the better.

The Bottom Line

The ultimate goal of wealth preservation is safeguarding your gains. By implementing a combination of strategies, you can build a secure financial future for yourself, family members, and other beneficiaries or gift recipients.

Routinely check on your investment and bank accounts, and see if your beneficiaries need updating at least once per year and immediately after a significant life event such as birth, marriage, or divorce. Because every individual and case is different, seeking guidance from a financial planner, tax advisor, and/or estate planning lawyer can help strengthen your wealth preservation plan and help you achieve your financial goals.