Welcome to September Edition of Top of Mind!
We’re hearing it more and more from clients, usually those well into their golden years:
“I have more money than I’ll ever spend.”
And no, they didn’t hit the Powerball jackpot.
What happened is simple but powerful: good habits and compounding. After 40+ years of prudent investing and spending, their account value has reached a point where it grows faster than their desire to spend.
We call this “Escape Velocity”—like a spaceship breaking free from Earth’s gravity, the portfolio grows faster than their spending needs.
This is when clients often ask: Now what? They’ve already checked the financial-security box. The question becomes how to maximize their situation. How do they turn this “number on a page”—their account value—into something more meaningful?
That’s the topic of this month’s Top of Mind.
Here are five ideas:
1. Spend It (With Intention)
This one’s obvious, but the trick is what to spend on. Most people at this stage aren’t looking to accumulate more “stuff.” They’re decluttering the attic and clearing out the basement, not stockpiling more.
One idea: spend on experiences not things: a big trip with the grandkids, family gatherings, or adventures on your bucket list. Memories that will last generations.
Timing matters, of course: do it while you’re still young enough to make the most of it.
2. Give It Away
As the saying goes, “Give with a warm hand.” That way you see the impact.
If you’re used to giving with your checkbook, there are financial planning strategies to consider that make your money go even further:
- Donor-Advised Funds (DAFs): Contribute appreciated securities, get potential tax benefits, let the fund grow, and direct donations over time. Bonus: you can name your children as joint or successor advisors and make it a family tradition of giving.
- Charitable Trusts: A Charitable Remainder Trust can provide you with income during your lifetime, then pass the balance to charity. A Charitable Lead Trust does the opposite: charity receives income now, while heirs receive the remainder later. Both can be great options depending on your wishes.
- Community Patronage: Think beyond traditional giving! You might endow a position in a school or the community, fund scholarships, or revitalize a local park.
3. Give to the Next Generation
Sometimes inheritances arrive too late, after heirs longer truly need the money. Gifting while you’re alive moves that benefit forward.
Common examples:
- Helping with college tuition
- Down payment assistance on a first home.
- Contributing to your adult child’s or grandchild’s IRA, typically a Roth, if they’re eligible. This frees up their budget to contribute more to their 401(k) and unlock a company match.
The IRS has reporting rules and thresholds, but for most people gifting is easy and straightforward.
4. Maximize Inheritance
Most people don’t realize that Traditional IRAs are one of the least efficient assets to leave behind. Taxes can significantly erode their value for heirs. These accounts have never been taxed, and the IRS wants its money!
One solution: Roth conversions.
You pay the taxes today, but heirs inherit an account with potentially much more favorable tax treatment. In our experience, the short-term pain associated with the tax bill is often more than worth the long-term gain associated with the long-term tax benefit.
As always, the best approach depends on your situation.
5. Avoid Overfunding Retirement (for Younger Investors)
Having “too much money” may be the definition of a “good problem to have!” If you’re young, a high earner, and ahead of the curve on your investments, consider not over-funding your retirement. Here are a few ideas in that regard:
- Think beyond retirement. It’s just one financial goal among many. More focus can go toward paying down debt or saving for a child’s education.
- Plan for peak spending years. Early retirement often brings the best window for travel and experiences. Take advantage of it. Waiting until your 80s or 90s may be too late.
- Enjoy the Ride! If the financial plan we’ve built together shows you’re on track to meet your goals, don’t overfund it. Spend now on the people and experiences that matter most.
Putting it All Together
Many of these strategies can work in conjunction. For instance: convert a traditional IRA to a Roth, then offset the taxes by contributing to a Donor Advised Fund. Split the DAF into smaller accounts for your adult kids or grandkids, making them advisors. Now you’ve optimized your inheritance, saved on taxes, multiplied your charitable impact, and created a family legacy of giving.
That’s a pretty good day at the office!
The starting point is simple: a conversation. From there, we can run the numbers and design a plan that fits your goals, turning that “number on a page” into something truly special.
Thanks for reading this month’s Top of Mind! If you’re interest is piqued, we’d love to help you turn ideas into action.
Warm regards,
Kurt, Cassidy, Ken, Teresa, Brian, and Jacque
For educational purposes only. Baird does not provide tax advice. Please consult your tax preparer.