Retirement planning centers on setting financial goals for the future and finding a path to reach them. For most, the ultimate objective is to ensure you have enough money to maintain your lifestyle in retirement.
For high net worth individuals, retirement planning may not seem like a major need. It can be tempting to think that enough assets and investments are enough for an enjoyable, financially secure retirement.
A high net worth can support a more comfortable retirement, but does not guarantee it. It’s still possible to overspend, face a high tax burden, and watch savings lose value over time as inflation rises.
Retirement planning can put your money to work for you. That can mean finding investment options that fit into your tolerance for risk to achieve your goals. This process can also lead to a lower tax burden through tax reduction strategies. Additionally, retirement planning can help you structure your estate and determine beneficiaries for investment accounts.
There’s a lot to think about when it comes to retirement planning for high net worth individuals. The following pieces of advice can help you make more informed decisions about your financial future as a retiree.
1. Everyone Needs a Retirement Plan
Retirement planning is a complex, multi-step process. It’s another responsibility on top of your career, family commitments, and shorter-term financial planning. That means some individuals put retirement planning off and delay starting the process.
However, the reward of successful retirement planning is powerful. Building a retirement plan means you have a strategy in place to guide you and your family after retirement.
Those two things are true for everyone, not only high net worth individuals. However, having a significant amount of assets can make retirement planning seem like less of an important need.
Depending on your post-retirement lifestyle and spending, as well as broader economic conditions, you could still drain your resources. Retirement planning serves as a guide to better protect your assets and build a more secure financial future.
That includes everything from maximizing your Social Security benefits to building an estate plan that suits your needs and supports your heirs.
With a plan in place, you can understand what’s sustainable and what isn’t from a financial perspective.
No matter what your bank account or portfolio looks like, retirement planning can be helpful. This process can reduce financial risk and support a more stable and enjoyable retirement.
2. Create Specific Retirement Goals That Take Your Needs and Wants Into Account
Retirement planning is an individual process. Your specific wants and needs in retirement are unique. That makes it especially important to incorporate both into your financial planning for retirement.
Explaining your priorities to your financial advisor can help them build an effective strategy. Where should you start?
Basic wants and needs to consider include:
- Healthcare. The need for healthcare generally becomes more frequent as individuals age. Ultra high net worth individuals might consider self-insuring for long-term care, which represent significant costs in retirement or getting a policy to pay for some of the cost.
- Housing. Do you want to downsize after retirement? Or build or move into a more luxurious property to better enjoy your golden years? Retirement strategies can account for these options, as long as you have a clear picture of your goals.
- Foundational expenses. High net worth individuals can have basic expenses that significantly exceed those of people with lower incomes. Maintaining a large home or multiple properties is one example.
- Travel. Retirement can be a time to enjoy the freedom that comes with leaving the workforce. Do you plan to travel extensively, or just occasionally? What types of destinations and experiences do you have in mind?
- Entertainment. Country club memberships, VIP seats at concerts, theater and opera season tickets and patronage — these all represent potentially significant expenses. Factoring them into your retirement plan can help you better account for those costs.
- Philanthropy. Increasing charitable giving in retirement is a common goal. Working with a qualified financial advisor can help you contribute to causes you care about and potentially reduce your tax burden.
- Estate planning. How do you want to distribute your estate? Are your listed beneficiaries up to date, and do they reflect your wishes? A retirement planner can help you ensure that your goals continue to be carried out through your estate.
3. Don’t Neglect Tax Reduction Strategies in Retirement Planning
Retirement and financial planning for high net worth individuals include more than only investment strategies. Among other important considerations, it also includes tax planning.
Tax obligations can be more significant for people with a high net worth. High earners fall into the highest income tax brackets. State taxes on investment income, retirement income, and other funds can be significant or entirely absent. Gift and estate taxes can come into play more frequently than they do for individuals with lower incomes.
What happens when a high net worth retirement strategy doesn’t take tax reduction into account? High tax liabilities can eat away at retirement savings and accumulated wealth.
At the same time, there are proven tax reduction strategies for reducing overall tax burdens. For example, planning financial gifts to family members and others can reduce exposure to the federal gift tax. Making qualified charitable distributions from an IRA to a nonprofit can reduce your taxable income.
Everyone’s needs and goals are different when it comes to retirement planning. A qualified financial advisor can help to navigate this complex space. They can determine which specific tax reduction options are most relevant to your situation.
4. Work With a Fiduciary for High Net Worth Retirement Planning
Fiduciaries are held to exceptionally high standards in terms of working with clients. In simple terms, they must always act in the client’s best interests, and not their own.
Fiduciaries are bound by the contracts they sign with their clients to put their client’s needs first. They can face financial and legal consequences should they fail to do so.
Your comfort and financial health retirement are incredibly important. When you look for a retirement planner, consider the value of working with a fiduciary.
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