The Only 5 Financial Decisions Affluent Near-Retirees Can Control
See the 3 Steps to Securing Your Ultra-High Net Worth Retirement
Your ultra-high net worth retirement is getting closer.
Are you ready? What does it even mean to be ready?
If you’re wrestling with those questions at the moment, you have come to the right place. You’re about to learn that it is possible to secure your retirement so well that you can sit back and relax, and enjoy the lifestyle you’ve always dreamed of. You can have the life you want, and you can have it free from stress, worry, anxiety, and fear.
The surprising truth is, you won’t likely avoid those unwanted feelings in retirement if you use the methods that almost everyone else uses – the ones developed and employed by Wall Street, big banks, and brokerage houses.
Keeping reading to discover the three specific steps you can take to secure a retirement of financial serenity or click here if you’d like to tmanaging member and
Step 1. Understand the Only 5 Things You Can Control in Retirement
Far too much attention is given to stock market projections, rates of return, the “best” mutual funds, the latest hedge fund, and so many other investment questions. Most of those things are either unknowable or impossible to control. What’s unknowable? Anything in the future.
Every financial advisor is required by law to tell you that past performance is no guarantee of future returns. Yet, many of them talk as if the opposite were true, even though this statement appears on their forms.
True financial serenity in retirement for high net worth and ultra-high net worth people begins by knowing what you can control. This is where we must begin.
Here are the five things you can control in retirement:
1. The Amount You Spend
Whether you’ve planned your spending by day, by month, by year, or some other time period (or not at all), you have great control over what you spend.
You can go on a trip, or not go. You can buy a new car, or not buy one. You can remodel your kitchen, pay for college for your grandkids, purchase art, donate to charity, buy a vineyard – or you can choose not to do all those things.
You have complete control over almost all your spending, outside of common bills.
2. The Amount You Save
Just like spending, you have a great amount of control over what you save, and where you save it. Suppose you expect to net about $200,000 per month in retirement. You can decide to save $50k, $25k, $100k, or $0. You have complete control over this decision.
These first two things within your control play an enormous role in the retirement plans an independent fiduciary wealth manager such as Pillar Wealth Management will create for you. Too many advisors create plans based on expected rates of return, abstract estimations of risk tolerance without context, and without considering the complexity and unpredictability of life.
Why does this matter so much?
As you’ll see later, it matters because things outside of your control will change. And your only options for how to respond to those changes are the five items on this list. Let’s keep going.
3. Timing of Major Distributions
Major distributions are large, one-time expenses. We listed a few earlier, such as cars, college, and vineyards. The important distinction here is, if you do plan to spend money on large items like these, you also have control over when you pay for them.
Suppose you want to pay for part of your grandkids’ college, for instance. You don’t necessarily have to wait until they actually go to college to spend this money. You can set it aside in a trust well in advance. You can keep it in reserves until they follow through and complete college, making them take out loans first to learn some financial realities. Then, with their degree in hand, you fulfill your promise to cover their loans. You can pay it year by year, term by term, or many other ways.
You can decide how and when you want to pay this large expense.
This is true for all major distributions. Why does this matter?
Because if circumstances change outside of your control, and it becomes in your best interests (which a fiduciary will act on, always) to delay or advance a major distribution in order to stay on track for your retirement goals, you have the power to make that adjustment to your investment plan.
Schedule a chat with CEO and co-founder Hutch Ashoo by clicking here
4. Risk Tolerance
Many financial advisors and wealth managers build their investment plans based on risk tolerance, de-emphasizing the other items on this list. For ultra-high net worth retirees, that simply isn’t adequate, and it’s the reason so many live with an underlying sense of insecurity, no matter how much money they have.
Risk tolerance without context means almost nothing. Just stating your risk tolerance is little better than drawing it out of a hat. Feeling aggressive today? Maybe just moderately aggressive? Since you’re nearing retirement, you might want to consider a conservative or moderately conservative approach. Which sounds more appropriate for you?
That investment approach is nonsense.
Risk tolerance is not a gut feeling. You can’t determine risk tolerance based on how you think you would feel if your investments lost 20% in a market crash.
The truth is, risk tolerance is inextricably linked to your short and long term financial and lifestyle goals.
In general, high risk investments lead to greater volatility. You can make a lot, but you can lose a lot. For most ultra-high net worth retirees, that’s not the path to financial serenity, because no one likes going through each day worried about how the market is doing. Low risk investments are more stable, but also aren’t usually able to generate high returns.
So you can have high risk, and high volatility. With that comes anxiety and a pervasive uneasiness throughout retirement. Or, you can have low risk, and low performance. Or, you can try to find some place in between, with higher performance but greater stability.
Which approach is best for you? Or, better stated, which asset allocation is best for you?
Know someone else who needs to read this? Share blog
It depends on what you want to accomplish!
For instance, suppose there are two ultra-high net worth folks nearing retirement named Brian and Michelle. They don’t know each other, but both have $30 million saved for retirement.
Brian’s greatest desire is to retire early and take it easy the rest of his life. He has worked super hard for 20 years, and at age 50, he’s ready to be done soon. He figures $30 million ought to be enough to get him through the rest of his life.
Michelle’s greatest desire is to partner with her brother in a new business venture. She’s hoping to be a source of funding for his early years before he becomes profitable, and then both of them can enjoy the rewards once he his business succeeds. But that might take ten years or more.
Now, both these folks have the same amount of money. But Michelle probably needs a higher level of investment performance than Brian does. Therefore, Michelle will opt for a higher risk tolerance and the asset allocation that supports it, and Brian probably for a lower one. How high and how low each should be would require a lot more specifics.
The point for now is hopefully clear: Risk tolerance has little to with your feelings about how much money you want to gain, and how much you can stand to lose. And it has even less to do with how much money you already have.
Risk tolerance depends on what you want to do with your money, and how you want to live your life. What is most important to you? What is second most important? What are your goals? What dreams do you think about almost every day? The answers to those questions determine your risk tolerance.
And yes, this too can change as your life progresses.
If Michelle’s brother gives up on his venture after five years, Michelle may no longer need as high a level of performance as she expected to. Therefore, her investment plan will change.
Does Your Plan Need to Change?
Pick a date on our Calendar page to chat with managing member and co-founder Hutch Ashoo, or email him directly at [email protected]
5. Your Legacy Plans
Most of our ultra-high net worth friends prefer not to be down to their last cent when they die. You will have some money remaining. Hopefully a lot. What are you going to do with it? Who are you going to bequeath it to?
This too is within your control. You may plan at one point to send $2,000,000 to each of your three kids, and $500,000 to each of your eight grandkids. A few years later, perhaps after a health scare, a recession, and a lawsuit, your financial picture has changed, and you may decide to cut all these in half.
Or maybe, one of the grandkids goes off the deep end into addiction, and you want to write them out completely. Or, the tax laws get changed. Or, you get divorced. That changes everything.
How much you leave, and to whom you leave it, is completely within your control as long as you’re alive.
Step 2: Build for Goals Beyond Your Lifetime
Now that you know the five things within your control, you will see your entire financial picture differently. Nothing else is within your control. Health, marriage, kids, work, real estate, the economy, world events, aging parents, business investments – all of these things can change without your consent or control.
So you build your plan based on what you want most for the five areas you can control, and for the other goals you cannot control. How much do you want to spend and save each month? What major distributions are important to your ideal retirement lifestyle? How much do you want to leave to your heirs?
The answers to these sorts of questions extend beyond your lifetime. You’re planning for your future, and for other people’s futures.
Based on these and your other goals, your wealth manager should build your retirement investment plan so that you have the highest possible probability of achieving all of them. How that plan gets built is the ultimate key to living out the retirement of your dreams.
(click the link and then scroll about halfway down to see our process)
Step 3: Adjust These 5 Things as Life Progresses
As already hinted, life will happen. This is the part that most financial advisors just kind of ignore. Sure, they’ll have an initial consultation with you and talk about a lot of these things. They may even write some of them down and build your plan around it.
But five years later, ten years later, twenty years later if you stick with that advisor for long enough, how much will your life resemble what you built your plan around many years back?
Very, very little.
Your life and the world around you will change dramatically, before and during your retirement. Think about how much has changed in just the last ten years.
As things change, your retirement plan must change with it. You must update your plan – frequently – so it always remains current, and the projections built into it are always based on the current reality, not some outdated past.
Pillar Wealth Management updates all our clients’ plans every quarter, and we rerun our financial projections every time based on the new asset allocation and investment breakdown.
Your Next Step – Find a Wealth Manager to Create Your Retirement Plan
Did you notice that we just mentioned our financial projections, and that earlier in this article, we talked about how projections of the future can’t be trusted? Are we contradicting ourselves?
Just like risk tolerance can’t be pulled out of a hat, neither can investment performance projections.
If you’d like to learn more about our innovative and proprietary process for how we project financial serenity and create customized investment plans, you have three options:
1. Read this article – you can scroll down about halfway
#3 will get you the most personalized answers in the shortest possible time. We hope to hear from you soon. Your retirement is coming – and as fiduciary independent wealth advisors, we want you to experience the best possible version of it.