Personal Finance: Wealth Management, Retirement Planning and Tax Strategies

Effective money management is the foundation of financial security and independence. Regardless of how much money an individual makes, budgeting, saving and investing wisely are essential to achieving short- and long-term financial goals. Effective money management strategies help individuals avoid debt, create a safety net and generate wealth.¹ Finance professionals play a key role in helping individuals manage their wealth.

This post will explore the role of finance professionals in wealth management, as well as the personal finance strategies and wealth management principles professionals might recommend, including retirement and tax planning.

Finance professionals are critical in wealth management, offering expertise and tailored strategies to help clients build, protect and manage their clients’ wealth. Wealth management includes all aspects of protecting and growing financial assets, from saving for retirement to estate planning. To reap the greatest rewards, finance professionals need to offer clients a comprehensive plan that is regularly reviewed and adjusted to keep clients on track. Finance professionals can offer personalized plans to help build wealth by maximizing returns and minimizing tax burden in the following areas.²

Considering client goals, such as saving for college or retirement, and risk tolerance, a financial advisor will help develop an investment strategy. They may also choose and manage investments for clients and make changes as needed to optimize their portfolios.²

The Internal Revenue Service (IRS) tax code is over 6,500 pages long.³ Within these pages are tax breaks, tax incentives and tax exceptions that the IRS grants to foster certain behaviors, such as switching to more energy-efficient vehicles, or to stimulate the economy by encouraging specific investments. Tax strategies for wealth management help clients take advantage of all the tax breaks they are entitled to avoid paying more taxes than required.⁴

An estate plan ensures an individual’s assets are distributed the way they want after their death, usually in a manner that minimizes the complications and estate tax burden for their heirs. A financial advisor can help a client create a will and trust to transfer assets as seamlessly as possible when the time comes.⁵

Finance professionals can guide clients through optimal investment strategies based on their goals and available assets. However, regardless of individual circumstances, diversifying a portfolio is almost always a good idea. Diversification involves spreading assets out among different classes of investments, such as stocks, bonds and real estate, so if one underperforms, the others make up for it.

Other factors that can affect investment strategies are risk tolerance and time horizon. Time horizon is how long an individual plans to hold the investment. If they have a longer time horizon, they can generally make more aggressive, higher-risk investments since they’ll have more time to recover any losses.⁶

Retirement planning takes a long view in finance to help ensure individuals won’t outlive their money. The first step to planning for retirement now is for the client to identify financial needs by considering factors such as expected retirement age, lifestyle aspirations, healthcare needs and what they hope to leave to their family. A financial advisor can help estimate retirement expenses by assessing living costs, healthcare expenses, travel habits, hobbies and inflation. Individuals also need to consider potential changes in their spending patterns, such as paying off a mortgage or increased healthcare costs.⁷

Early and consistent retirement saving leverages the power of compound interest, where earnings generate additional earnings over time. It also reduces the amount needed to save each month to build a larger nest retirement fund.⁷

There are several options when it comes to saving for retirement, but the most common accounts are employer-sponsored 401(k) plans and individual retirement accounts (IRAs). A 401(k) is a tax-deferred retirement plan for which contributions are deducted directly from a paycheck. Some employers match contributions up to a certain percentage.⁸

An IRA is an account an individual sets up on their own, either as a traditional IRA, for which pretax contributions are tax-deferred, or a Roth IRA, for which contributions are post-tax but withdrawals are tax-free.⁸

Regardless of which type of account a client chooses, finance professionals will typically advise clients to contribute the maximum amount allowed by the IRS each year. Those who are 50 and older can also make catch-up contributions, allowing them to contribute additional funds beyond the standard limits.⁸

In addition to retirement accounts, individuals may be able to access other income streams when they retire. Social Security benefits provide a base level of income, but this isn’t normally enough to live on.⁹

Annuities are another vehicle for future retirement income. They’re purchased through insurance companies and pay out a fixed amount.⁹

If an individual has a retirement account, they are responsible for deciding how much to take out for expenses. The 4% rule suggests withdrawing 4% of retirement savings in the first year and then an additional 2% every year afterward to avoid depleting the account too early. Traditional IRAs have a required minimum distribution that must be taken out each year after the account owner reaches a certain age; otherwise, they will face hefty tax penalties.¹⁰

Paying taxes is so inevitable that it made Ben Franklin’s shortlist—along with death—of things that are certain in life.¹¹ However, with a strong tax strategy, people can minimize their tax burden and save more money for their goals. Finance professionals can play a key role in this area.

Income is taxed based on a tax bracket. The U.S. has progressive tax rates, meaning amounts earned above certain thresholds are taxed at higher rates. Federal rates apply to all taxpayers, while state rates differ by location.¹²

Tax-advantaged accounts like IRAs let individuals grow their investments tax-free or tax-deferred. People can also hold taxable investments for over a year to benefit from lower long-term capital gains rates and spread out tax losses to offset gains.¹²

Common deductions, like mortgage interest and charitable donations, lower taxable income, while tax credits, such as energy-efficiency credits, directly reduce the amount owed. To take advantage of these tax strategies, professionals will advise clients to plan ahead and keep detailed records to support their claims.¹²

If you’re interested in learning the skills you need to master finance for wealth management, look into William & Mary’s Online Master of Science in Finance. You can graduate with your master’s degree and a specialized finance certificate in as little as 16 months. Our expert faculty will provide you with the hands-on learning you need to become a leader in the financial industry.

Schedule a call with one of our admissions outreach advisors today to learn more.