The Definitive High Net Worth Retirement Planning Guide
We understand the concerns of high net worth individuals or families facing retirement. For over
thirty years, Pillar Wealth Management has managed assets for families, and we’ve learned a lot
about retirement planning.
Whatever lifestyle you’re accustomed to, whatever your net worth, you may want to read our wealth management and retirement planning book to help you feel more secure about high net worth retirement down the line.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning
The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
Some of your concerns may subside if you feel comfortable with your financial advisor.
Discussing your concerns and seeking assistance is a good start. Before you reach out, it may
help to formulate a list of concerns and questions, to begin with.
If you’re ready to speak with somebody, schedule a free, no-strings-attached conversation with Pillar Wealth Management. We’re used to working with high net worth individuals (HNW) and ultra-high net worth portfolios (we even wrote the book on protecting ultra-high net worth portfolios and estates).
Whether or not you’re ready to talk to somebody, it’s time to stop worrying and start planning
for your high net worth retirement.
One Barclay brother, David, believed his brother Frederick was trying to go behind his back and
sell the Ritz so Frederick’s daughter would benefit. So, one of David’s sons installed a secret
audio recording system in the conservatory at the Ritz where Frederick held many of his private
Table of Contents
- How to Stop Worrying about the Uncertainty of High Net Worth Retirement
- Retirement Reality Check
- The First 3 Steps to Setting Your High Net Worth Retirement Goals
- Know Your Income Sources in Retirement
- What is a High Net Worth in Retirement?
- Calculate How Much You Need to Save
- Max Out Your Retirement Accounts
- Plan for Medical Expenses and Long-Term Care
- Minimize Your Tax Liability
- Estate planning
David’s clan was able to listen to 94 hours of over 1,000 conversations between Frederick, his
daughter, their lawyer, and many others, including prospective hotel buyers.
But Frederick started to suspect something was up because David always seemed to be one step
ahead of him. So, he installed a secret video camera and caught David’s son planting another
How to Stop Worrying about the Uncertainty of High Net Worth Retirement
No one is immune from worry about retirement planning. Not even high net worth households. It may be a little easier for high net worth families who chose their wealth management firm wisely, but it’s always a concern. Especially for those who are in the highest income tax bracket, accumulating retirement savings is very beneficial for the future.
But what does it really mean to plan for high net worth retirement? How do you shift from
freaking out about retirement to finding that relaxed, serene feeling that you’re ‘all set’ and ready
to enjoy life?
Before you can answer that, you must begin by facing retirement reality.
Retirement Reality Check
If we define ‘retirement’ as ceasing to work at a job that pays you a net income, then the first
step to creating retirement planning is to assess what will happen on the very next day after you
exit employment. In general, a retirement planner can help you to make investment strategies and
financial planning advice so you will have a satisfactory high net worth retirement.
Here’s what happens:
• Your income drops to $0, unless you retire late enough and decide to receive Social Security (the timing of which is not a simple decision), or have a pension.
• Big expenses – planned and unplanned – will no longer get replenished from wages.
• You will depend completely on your investment portfolio and savings, unless you also have income-generating real estate or other passive assets.
So if you were allocating $30,000 per month in total expenses living your lifestyle while working, you’ll now allocate that entirely out of your investments and savings.
That’s the reality of high net worth retirement. And it’s why retirement worries a lot of people – even high net worth ones. This isn’t FOMO (fear of missing out); it’s FORO (fear of running out), and it’s why now is the time to start protecting your wealth.
The median net worth at 65 years of age is around $275,000 (the average is around $1.2 million, which includes the 2% of the population that owns most of the wealth).
The average 60-year-old has saved $172,000 for retirement. This is equivalent to $573.33 per month to supplement any retirement income for 25 years of retirement.
Having a financially comfortable retirement depends on your level of expenses—you have enough income to cover your daily needs but also enough for emergencies such as a major medical expense.
Less than 10% of Americans have $1 million in savings; per household, the median net worth for retirees is about $250,000, and the average net worth is around $1 million, which includes your home.
High-net-worth individuals should take advantage of making the maximum contributions to a 401k (or IRA) to increase their retirement income and reduce their taxes.
Most individuals retiring at age 65 would be able to live quite comfortably on $5 million, considering that $5 million invested in an ordinary saving account could earn $75,000 per year.
The rule states that in each year of retirement, you can withdraw up to 4% of your portfolio’s value (adjusted for inflation) so your wealth lasts for as long as you live.
For many retirees, the biggest expense is housing, including utilities, maintenance, insurance, and property taxes. Other major expenses are transportation (car payments and insurance) and healthcare.
The First 3 Steps to Setting Your High Net Worth Retirement Goals
Before you actually do retire and cease earning income, you should take the following 3 steps:
List out your living expenses
This includes everything.
Mortgage payments, if any. Any payments to other outstanding loans and debts. Membership fees. Donations. Food. College tuition payments. Healthcare Costs. Home repair. Pets. Insurance. Dining. Entertainment. Transportation. Travel. Gifts. Everything. Americans who work in a company have mostly been registered in the 401(k) plan of the company.
How much do you spend each month? How flexible is this? Do you control your expenses? If you’re spending $30,000 per month, perhaps you can reduce this to $25,000 without altering your lifestyle too much. You also need to do some tax planning.
However, before you start thinking that way, think about this: It has been our experience when they utilize a customized high net worth retirement planning process built exclusively for people like themselves, high net worth households find they can actually increase their spending in retirement. This is part of what it means to optimize your performance.
So before you assume you have to cut back, just because almost everyone else does, consider the possibility that you may be able to amp up your lifestyle even more and still be totally secure for your financial future by hiring a certified financial planner.
So, perhaps you’ll want $55,000 per month since you are barely traveling now and you have plans to travel more.
How can you know what spending level is safe for you?
You can keep reading…
Or, if you don’t want to keep reading and want answers now, sign up for a free Wealth Management Analysis meeting, and we will give you that answer you seek about high net worth retirement.
Determine What You Want to Do with Your Time
Doctors tell us that the key to a successful and happy retirement is “preparation.”
So many possibilities await you in retirement. Yes, your work income will end. But your schedule and time freedom will open wide.
• Spend time with family and friends
• Spend more time at your vacation home
• Go golfing or fishing
• Learn a new language
• Help your kids or grandkids start a new business
• Lounge around and relax
• Spend more time on your yacht
• Write a book
• and many more
If you don’t make a plan, you’ll spend years of high net worth retirement in limbo watching ball games and reality TV, feeling out of place and uncertain, as if you’re supposed to be doing something. That is why prioritizing retirement savings is important.
Understand the difference here: Planning to sit around and watch ball games is fine for a time. But to not make a plan and passively end up watching ball games – that’s not fine. That’s net worth retirement limbo.
Studies have shown that retirees who stay physically, mentally, and socially active lead happier retirements, and that some of these activities can even reduce your risk of diseases like Alzheimer’s.
According to psychologist and author Robert Delamontagne, PhD, many retirees experience anxiety, depression, and feelings of loss, but never say a word about it.
For high net worth retirees, this is particularly true because of the embarrassment. You’re supposed to be enjoying your well-earned retirement and have made the retirement accounts. Who are you to be discouraged and depressed? Yet, that’s the reality of high net worth retirement for many. Why?
Because they failed to make a plan. A wealth manager can help you make the best possible high net worth retirement plan, customized to your desired lifestyle.
Determine Your Retirement Monthly Income
With your expenses and your retirement activity plans in hand, you can now determine your new monthly income. How much will it take to cover your costs and facilitate the lifestyle your desire?
Figure out your number. And be precise.
High-net-worth (HNW) individuals need assistance from a financial advisor as they have a huge amount of assets. They should also invest their money in an investment that is tax-efficient, like a Roth 401K. If you want tax-free growth and tax-free withdrawals, Roth 401Ks and Roth IRAs have them. However, if you want to get the dividends and benefits of capital gains, acquired over a long period, you can invest in dividend stocks. Your investment will contribute to that comfortable high net worth retirement.
When you’re working, precision is a bit less important because you can always refill the bucket with your new income. In retirement, you no longer have that luxury. So be precise. How much do you need?
With your expenses, planned lifestyle, and monthly income determined, you now possess the building blocks of a high net worth retirement plan, and we can develop a high net worth retirement plan that optimizes your investment performance and enables you to live out your plans and dreams.
Know Your Income Sources in Retirement
With your high net worth retirement plan foundation in hand, now you need to determine where the money will come from.
If you own real estate or other passive income-generating assets, you have a bit more flexibility
here. But if not, your high net worth retirement income will come from three primary sources:
- Investments (IRAs, 401 k, equities, bonds, etc)
- CDs, cash accounts
- Fixed incomes (Social Security, pension)
Yes, there are exceptions and lots of variety within these three categories, but for most people, that’s pretty much it.
So the question is when you look at your numbers in all these places – Do I Have Enough for a comfortable high net worth retirement?
Suppose you’ve amassed $4 million in your portfolio and you just turned 55. If you retire in five years and live until age 90, do you have enough money to live for 30 years – at your desired monthly income?
That is the question.
That’s the only question that matters.
$4 million seems like a lot. So does $10 million. But if you’re used to living on $50,000 per month, that’s $600,000 per year. $4 million won’t last too long at that rate. Certainly not 30 years.
So how do you answer that question? How do you know if you have enough to cover your expenses, facilitate your plans, and fully fund your high net worth retirement’s monthly income?
And, just to add one more wrinkle, if you want to leave money to your heirs one day, how do you know if you’ll have anything left at the end? This is why choosing the right wealth manager is the most important decision remaining in your life.
Here’s how Pillar answers that question.
Retirement Planning Answers: Find Your Comfort Zone
‘Comfort Zone’ is not just a cliché in our high net worth wealth management and investment process. It’s a quantitative, measurable goal that we ascertain for our clients. If your portfolio lies within your Comfort Zone, then the answer to that all-important question of ‘Do I have enough for a comfortable high net worth retirement?’ is YES.
It’s that simple.
If your portfolio lies within the Comfort Zone, then you do have enough to live out your retirement, as planned, with your expenses and desired monthly income. Besides, as an investment is highly volatile, creating profitable investment strategies is crucial. That is why Pillar Wealth Management, all rights reserved, can assist you with investment management to make you ‘safe’ on your retirement.
For those families questioning their portfolio, it may be time to speak to your financial advisor or consider a new wealth management team altogether. For tips on choosing the best financial advisor for your high net worth or ultra-high net worth portfolio, try this ebook.
So what is the Comfort Zone and how do you know if your portfolio lies within it?
We begin by applying 1000 stress tests, what we call ‘what if’ scenarios, to your portfolio. These tests measure your portfolio’s performance against some of the harshest of economic and market conditions. Things like two recessions in ten years. Or a terrorist attack combined with a major natural disaster.
We have 1000 such scenarios, some more extreme, some less extreme. Using known market data going back 100 years, where we have seen and measured how the market performed under various stressful circumstances, we can evaluate how much confidence you should have in achieving your life objectives.
So, this is a historically backed, quantitative, data-driven high net worth retirement planning
You have high confidence of achieving your life-goals if, 75-90% of your stress tests (Comfort Zone), are projected to exceed (not meet) all your retirement plans and goals.
If you’re in that Zone, then you can enjoy your retirement, eliminate stress, pursue your plans and dreams, and relax.
Remember earlier how we said some people find they can increase their spending in retirement? We have delivered this surprising good news to many of our clients who had saved their money responsibly for many years.
The Comfort Zone is what allows us to say this.
For instance, let’s use our $30,000 per month spender again. When we run the 1000 stress tests for that person, we might find that they still lie within the Comfort Zone if they were to spend $55,000 per month.
That means, without any worry or concern about having to scale back or restrict their lifestyles, they can increase their spending.
Now, on the other hand, we might also find that spending $30,000 per month puts that family in an underfunded zone (below 75% confidence). In a case like that, we will make an adjustment to something in their life (not necessarily monthly income), and rerun the stress tests until their confidence again falls within the 75-90% Comfort Zone. So, we might find that reducing the inheritance to their kids and charities from $2 million to $1.5 million is all it takes.
Do you see the power of this approach to high net worth retirement planning? It not only includes planning out your liquid investments, but it also includes an in-depth look at your real estate plan and other passive income, your trusts and estate, your insurance policies as well as a deep look at your social security payouts and medical costs.
Few other wealth advisors offer this level of high net worth retirement and investment planning service, but you have earned it and your future is worth demanding it.
You’re not guessing.
You’re not weighing the pros and cons, without any concrete sense of what you should do.
You’re making data-backed, ironclad decisions that are founded on impartial, historical facts.
That’s what we do for our clients at Pillar Wealth Management, and we would do the same for you.
Want to Find Out if You’re In the Comfort Zone?
Simply get on our schedule for a free Wealth Management Analysis meeting, and we’ll run your stress tests and find out where you stand. We’ll tell you if you have enough money to meet all your goals and lifestyle plans.
Do you want to know?
Sign up for a conversation with Hutch Ashoo, Founder and CEO of Pillar Wealth Management to discuss your goals further.
What is a High Net Worth in Retirement?
Having a high net worth in retirement means that an individual who is ready to retire has $1 million in investable assets. These are assets held as cash, in bank accounts, stocks, and mutual funds, or any investment vehicle that can be quickly converted to cash.
If you’re planning for when it’s time to retire, you need to ensure you will have the income you need to maintain your current lifestyle or adopt a new one. You need to take the following steps to prepare for retirement.
Calculate How Much You Need to Save
When the paychecks stop, you will depend on your retirement benefits, savings, and income from investments to pay the bills.
You’ve been saving all your life for retirement, and you started tracking your expenses beforehand. You’ll want to know how you’re spending your money over time, preferably over several years.
You’ve noticed that over time, your expenses change. Your children have grown up and left home. Your medical bills are growing. Tracking your expenses can help you estimate your future needs.
As you approach retirement, you may notice that your spending decreases with time. However, if you are accustomed to high consumption as a high-net-worth earner, you may want to continue that high-spending lifestyle.
Regardless of your situation, be realistic about your needs. In general, you should need less as you get older—after all, many of your needs have already been met.
Once you’ve calculated approximately how much money you need to meet your day-to-day expenses, consider your life expectancy. Multiply the number of years you expect to live by your yearly expenses to calculate how much you need in total.
Max Out Your Retirement Accounts
Not only do you want to maximize your savings, but you also want to maximize your retirement account contributions.
As a high-net-worth individual, you can afford to max out your accounts. In 2022, individuals can contribute up to $20,500 to a 401(k) and $6,000 to an IRA. If you are over 50 years old, you can contribute an extra $6,500 to your 401(k) and $1,000 to an IRA.
In addition to withdrawals from a retirement account or from an annuity, your income in retirement will include Social Security benefits, savings, and returns on your investments. Monitor your investments and work with your financial advisor to maximize your retirement earnings.
Plan for Medical Expenses and Long-Term Care
It’s quite likely that your medical expenses will increase after retirement, especially if you already have medical needs at a younger age and use prescription drugs. Even if you are paying Medicare premiums, you will have out-of-pocket expenses for drugs and other medical services.
To prepare, be sure to make the maximum contributions allowed into a health savings account (HSA). Contributions are tax-deductible, and withdrawals to pay medical bills are tax-exempt.
Also consider whether you anticipate needing long-term care. Long-term care insurance costs vary depending on when you start paying premiums. Insuring yourself means saving an additional $250,000, assuming you would need long-term care after age 85. If you choose to buy insurance, the downside is that you could pay premiums for years and never use the service.
Minimize Your Tax Liability
Working with your financial advisor, manage your asset diversification so that you minimize the capital gains taxes you need to pay.
You can delay withdrawals from your 401(k). Increasing your charitable contributions also reduces your tax bill.
You can consider moving to a state that has no income tax, like Florida or Alaska.
In addition to preserving your wealth for retirement, you can protect your assets for future generations.
An estate plan ensures your assets are distributed efficiently and equitably. Setting up a trust as part of your will protects your estate from taxes (a trust is a separate taxable entity). A trust can also be created while you’re still living, and it can be a revocable (changeable) trust.
To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.
We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.