{"id":1182,"date":"2020-08-26T05:01:19","date_gmt":"2020-08-26T05:01:19","guid":{"rendered":"https:\/\/finfree.com\/?page_id=1182"},"modified":"2021-10-06T21:07:26","modified_gmt":"2021-10-06T21:07:26","slug":"high-net-worth-retirement-planning","status":"publish","type":"page","link":"https:\/\/finfree.com\/high-net-worth-retirement-planning\/","title":{"rendered":"High Net Worth Retirement Planning"},"content":{"rendered":"

[vc_row][vc_column][vc_column_text]What is high net worth?<\/b><\/p>\n

There are a variety of definitions of high net worth. One common criterion is having $1 million or more in investable assets, above and beyond the equity in your home. Other definitions include possessing total assets of at least $5 million or at least $10 million. Ultra-high net worth individuals are typically classified as those who have over $50 million, or $100 million by some definitions, in assets.<\/span><\/p>\n

While the exact definition may vary, a common assumption is that high net worth individuals<\/strong><\/a> generally have substantial assets available to help fund their retirement. While this may be true, it does not mean that retirement planning is a piece of cake for those with high net worth. Nor does it mean that individuals who fall into this category don\u2019t have legitimate concerns about funding their retirement.\u00a0<\/span><\/p>\n

In fact, whether you have $5 million or $50 million in assets, the complex financial situations that are common with many high net worth individuals often mean that it can actually be more difficult to draw up a retirement plan. In addition, this complexity can lead to concern caused by uncertainty as to whether you will be able to preserve your standard of living in retirement.<\/span><\/p>\n

If your goal is to gain the financial freedom to live the lifestyle of your choice in your golden years, and that lifestyle is dependent upon your current salary, even a large fund of retirement savings can be quickly depleted if there aren\u2019t sufficient sources of income to replace your salary. This doesn\u2019t even take into account the deleterious effect inflation can have on your savings over time if your investments<\/strong><\/a> don\u2019t achieve a positive real rate of return.<\/span><\/p>\n

As a high net worth individual, how can you avoid having to downgrade your standard of living in retirement?\u00a0<\/span><\/p>\n

The answer is that proactive retirement planning<\/strong><\/a> can substantially improve your ability to maintain your lifestyle in retirement. Whether you perform the planning yourself or work with a financial advisor, it is essential to take action now to put yourself in a position to fully enjoy your retirement.<\/span>[\/vc_column_text][\/vc_column][vc_column]

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Chapter 1<\/div>\n

How to make your money last<\/h2>\n <\/a>\n <\/div>\n
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Chapter 2<\/div>\n

Importance of a comprehensive financial plan<\/h2>\n <\/a>\n <\/div>\n
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Chapter 3<\/div>\n

Understanding your unique needs<\/h2>\n <\/a>\n <\/div>\n
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Chapter 4<\/div>\n

Tax Planning<\/h2>\n <\/a>\n <\/div>\n
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Chapter 5<\/div>\n

Estate Planning<\/h2>\n <\/a>\n <\/div>\n
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Chapter 6<\/div>\n

Risk Management<\/h2>\n <\/a>\n <\/div>\n
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Chapter 7<\/div>\n

Finding the right financial advisor<\/h2>\n <\/a>\n <\/div>\n
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Chapter 8<\/div>\n

Finding Your Comfort Zone<\/h2>\n <\/a>\n <\/div>\n <\/section>\n\n
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Chapter 1<\/div>\n

How to make your money last<\/h3>\n <\/header>\n
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At its core, high net worth retirement planning is about making your money last. As lifespans have lengthened in recent decades, <\/span>longevity risk<\/a><\/strong>, the risk of outliving your income, has increased.\u00a0<\/span><\/p>\n

For instance, a monthly cash outflow of $20,000 may seem easy to handle if you are bringing in $30,000 a month in salary. However, if your expenses stay the same when your salary ends in retirement, that level of monthly outlays can quickly deplete even a sizable amount of savings.\u00a0<\/span><\/p>\n

Another factor that poses a serious challenge to high net worth investors is inflation. A decline in the purchasing power of your savings can have a disproportionately negative effect if you have a high net worth, making protecting your purchasing power an important factor to consider in drawing up your plans for retirement.<\/span><\/p>\n

To overcome these and other retirement challenges, careful planning is needed. The following action items can help you identify steps you can take to make your money last in retirement:<\/span><\/p>\n

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  1. Decide what you want to do in retirement<\/span><\/i>: Studies have demonstrated that staying active is conducive to a successful retirement, whether traveling, hobbies, regular exercise, or some other form of activity. Being involved with friends, family and your community are also important. Whatever you decide to do with your time when you retire, planning for it in advance is crucial to performing step #2.<\/span><\/li>\n
  2. Determine how much income you will need to support your spending in retirement<\/span><\/i>: Coming up with this number requires taking into account a number of factors, including where you intend to live, what you intend to do with your time, what the cost of living where you live is likely to be, etc. Once you have an estimate of your probable retirement expenses you can move on to step #3.<\/span><\/li>\n
  3. Identify your sources of retirement income<\/span><\/i>: These may be from sources such as annuities, Social Security, retirement plans such as pensions, 401ks and IRAs, and other investment accounts. Once you have calculated this total you can determine whether your income sources as currently calculated can cover your expenses.<\/span><\/li>\n
  4. Create a savings plan if necessary<\/span><\/i>: If your projected income doesn\u2019t cover your expected expenses in retirement, you will need to draw up a plan to create enough in additional retirement savings to cover the gap.\u00a0<\/span><\/li>\n
  5. Stress-test your retirement plans<\/span><\/i>: Also known as a <\/span>Monte Carlo analysis<\/strong><\/span><\/a>, a retirement savings plan stress test analyzes the results of hundreds, and even thousands, of tests based on historical records to determine whether you are likely to reach your savings objectives given your current plans. If these stress tests succeed from 75% to 90% of the time, they are said to fall within the Comfort Zone.\u00a0<\/span><\/li>\n<\/ol>\n

    This refers to a level of performance that provides you with the comfort of knowing that, given the past performance of portfolios similar to yours over a wide variety of time periods and economic conditions, your investment strategy has a high likelihood of allowing you to reach your retirement savings goal.<\/span><\/p>\n

    If your results are above 90%, it may indicate that you are saving more than you need to in order to reach your retirement investment goals. If your results are below 75%, it suggests that you need to do more, whether by investing more aggressively or setting aside more in retirement savings, to reach your retirement savings Comfort Zone.<\/span><\/p>\n

    Beyond stress testing your retirement savings plan, it is vital to analyze your finances in order to ensure that you are taking all the steps necessary today to maximize the amount of money available to you in retirement. Doing so requires taking a hard look at your budgeting to make sure you are striking the right balance between current spending and saving for the future.<\/span><\/p>\n

    Additionally, those with a high net worth typically pay more in taxes \u2013 meaning that the income you earn from your assets can be significantly reduced by taxation unless you take action to minimize the tax hit you face on your income from employment and investments.<\/span><\/p>\n

    For those depending on income from investments to make up a large portion of their retirement income, selecting the optimal investment strategy for their retirement savings is especially important to help overcome both longevity risk and inflation risk<\/strong><\/a>. However, many investors invest for retirement without taking the time to evaluate how likely their investment approach is to realize their retirement savings goal.\u00a0<\/span><\/p>\n

    This is where the stress test described above comes in. Whether you perform such an evaluation yourself or with a financial advisor, this type of analysis is critical to helping you select the strategy most likely to enable you to achieve your investment objectives.\u00a0<\/span><\/p>\n

    \"Vintage<\/a><\/p>\n

    Read our blog<\/strong><\/a> article: How High Net Worth Individuals Stay Wealthy<\/strong><\/a><\/p>\n <\/div>\n <\/section>\n

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    Chapter 2<\/div>\n

    Importance of a comprehensive financial plan<\/h3>\n <\/header>\n
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    Because those with a high net worth often have complicated financial situations, making plans in isolation, whether for retirement, purchasing a home, paying for a child\u2019s education, or any other purpose, can be dangerous to your ability to achieve your financial goals. The reason for this is simple: progress towards any one goal can be thwarted by financial issues caused by other aspects of your finances.<\/span><\/p>\n

    For instance, if you have allocated funds to your investment portfolio to buy a house but instead must use them to make tax payments, this represents a planning failure due to not taking into account your overall financial situation. Another example could consist of being forced to raid your retirement savings to pay current expenses because you haven\u2019t built up an adequate cash reserve fund, endangering your ability to live the retirement lifestyle of your choice.<\/span><\/p>\n

    The way to avoid these types of dilemmas is to construct a <\/span>comprehensive financial plan<\/strong><\/span><\/a>. This type of planning stresses the importance of considering all elements of your finances when making financial plans. The overall view of your financial situation provided by this approach enables you to more effectively plan to achieve multiple financial objectives. One of the questions to ask your financial advisor when discussing your financial plan is whether they can help you in the following areas typically covered by a comprehensive financial plan:<\/span><\/p>\n