Most financial advice is geared toward people who are struggling to reach their financial goals. But if you've already reached your goals, what should you do next?
The assumption that many people make is that if you hit some magic number with your net worth, you'll be able to stop worrying about money and simply coast off your assets for the rest of your life. Yet if you take that attitude, you could miss out on some opportunities that could not only make your qualify of life better but also benefit your loved ones for generations to come. Take a look at these five tips and consider whether and how they match up against your personal values.
Tip 1: Take care before boosting your expectations.
The tough thing about setting long-term financial goals is that by the time the long run rolls around, your expectations may be completely different. So if you've been fortunate enough to meet your initial goals successfully, the temptation to reach higher for more ambitious wealth goals can be hard to resist.
For instance, in the mid-2000s, stocks had largely recovered from the tech bust, and old-economy stocks were thriving. In particular, homebuilders Hovnanian (NYSE: HOV ) and Beazer Homes (NYSE: BZH ) had taken advantage of the soaring housing market to reach all-time highs. Related financial companies also did well, with title insurer Old Republic International (NYSE: ORI ) and mortgage insurer MBIA (NYSE: MBI ) having gained from housing activity.
Investors who rode those stocks higher faced a choice in 2006 and 2007: Scale back to lock in gains or double-down to seek a more luxurious lifestyle. Those who were aggressive ended up right in the middle of the market meltdown. The lesson: If the reasons for your initial goals are still valid, don't put your life savings at risk unless you have legitimate new goals to pursue.
Tip 2: Consider whether you're the giving type.
Rich people struggle with whether to leave wealth to their heirs. Although self-made millionaires like the idea of their children and grandchildren not having to start at the bottom, they also don't want to quash the natural ambition their descendants have.
One good compromise is to give in tax-smart ways. For instance, gifts for education don't incur gift tax as long as they're made directly to the college or other institution. Also, by giving appreciated stock to loved ones in low tax brackets, you may be able to save on capital gains taxes.
Tip 3: Kill two birds with one stone.
If you like to give money to charity but also want to provide income for yourself or your loved ones, then a charitable trust may be the right answer for you. With a charitable remainder trust, you can donate appreciated stocks and other investments to the trust, with provisions to pay chosen beneficiaries a certain amount or percentage of the trust assets each year. Whatever's left when those beneficiaries pass away then goes to the charity of your choice. Even better, some charitable trusts let you get a tax deduction right now for the value of the charitable gift -- even though the charity won't get the money for years to come.
Tip 4: Don't let Uncle Sam take your estate.
In the fiscal cliff resolution, the estate-tax exemption of more than $5 million was preserved. That gives a lot of breathing room for many people, but if you're still over the line, there are ways you can protect yourself. Through annual lifetime gifts to heirs as well as more complicated techniques like life insurance trusts and family limited partnerships or LLCs, you can make the most of the tax-free gifts the IRS allows you to make.
Tip 5: Protect your heirs from themselves.
What took you a lifetime to save can get squandered a lot faster if your heirs prove not to be as responsible with money as you are. Even though there are costs involved in setting up and managing trusts, doing so can be a key step toward making sure your money stays where you want it even after you're gone.
Get rich and stay rich
If you've already gathered a lot of wealth, you may think that you no longer need financial advice. Yet those who've kept the most have the most to lose. Only by staying prudent and on top of your money game will you be able to keep what you've worked so hard to get.
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