A relaxing, enjoyable, worry-free retirement is possible. But even for high net worth families, it is not guaranteed for the duration of your retirement. And while most people know they need to do ‘retirement planning,’ how many actually know how to do it?
We’re proud to say that we wrote a book about protecting wealth and retirement. To learn more about asset allocation, retirement planning, and risk management strategies for ultra-high net worth investors, order our book, 7 Secrets to High Net Worth Investment Management, Estate, Tax and Financial Planning here.
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.
What you’re about to read will be the guidance that can walk you through all the most critical questions and tasks you must answer and complete if you want to experience the retirement of your dreams. And let’s just come out and say this in case there is any doubt:
Retirement planning may be the single most important thing you can do for yourself – especially if you’re over 50 – regardless of your net worth. We suggest you read our guide on how to find an ultra-high net worth financial advisor for individuals having over $10 million in investable assets.
As for us, Pillar Wealth Management and co-owners Hutch Ashoo and Christopher Snyder develop retirement planning for high net worth and ultra-high net worth families who have between $5 million and $500 million in liquid investable assets. But even if you fall outside that range, you can still use this retirement planning guide to its fullest value. The quality of your future may well depend on it. We know how hard it can be to find an investment advisor that complements your investment vision and investment decisions and helps you achieve your goals.
If you are looking for effective investment advice and wealth management solutions for retirement planning, then send us your email and schedule a free consultation with us. If you’re looking for more personalized assistance with retirement planning, including the best investment results, we’ve created another ultimate guide – one that will help you find the very best financial advisor or wealth manager for your situation. Get your Ultimate Guide to Choosing a Financial Advisor right here.
Table of Contents
What Is Retirement Planning?
Retirement planning means deciding how to ensure you will have an income stream that meets your needs when you retire. For most Americans, this means starting to save money as soon as possible after joining the workforce, as well as investing in an employer retirement plan or in an IRA. You can hire a financial advisor to manage your retirement savings.
Start saving early and never stop saving. Invest in a retirement account with your employer or on your own. You can open a retirement account online and get advice from a robo advisor.
The first is planning. Then, you retire, and it’s like a honeymoon. Third, retirement may get boring, so you re-evaluate your goals. Finally, you settle down to a more satisfying lifestyle.
A good monthly retirement income is one that covers your daily expenses and any monthly or yearly bills such as insurance and taxes. It should cover the cost of vacations and other outside interests.
The 4% rule states that each year, you can withdraw up to 4% of your portfolio’s value, adjusted for inflation. This method allows your portfolio to last about 35–50 years.
Don’t underestimate your longevity. Don’t underestimate your healthcare expenses. Don’t underestimate inflation. Don’t avoid investing in stocks. Do avoid making excessive withdrawals from your portfolio.
Since you have a budget, you know your retirement income is sufficient to meet your needs, and you’ve applied for Social Security benefits, then the first thing to do is celebrate!
A good amount of money to have is 12 times your pre-retirement gross income. However, the amount you’ll need is quite variable and depends on your actual needs/expenses.
Traditional retirement occurs with receiving full benefits from Social Security; before that, it’s early retirement. Temporary retirement means retiring for a while and then going back to work.
Start saving early. Invest wisely. You should assume that inflation is a fact of life and that your healthcare needs will increase. Have a budget and stick to it.
Educate yourself on Social Security and Medicare; decide when to claim Social Security benefits. Review your retirement budget. Plan for how you will spend your time.
Defining Your Retirement Goals
History is replete with famous people who have retired and then died within a year, such as Andy Rooney, Joe Paterno, Bear Bryant, and Charles Shultz. We bring this up not to be morbid but to simply point out that your retirement planning needs to begin before you retire, not after. To learn more about retirement planning, click here to read our guide on the 5 critical shifts that help maximize portfolio performance.
It is distressingly common to read stories about people who finally leave their jobs only to find themselves sitting around watching TV all day, wondering what to do with their lives. Depression and disillusionment are high among new retirees. Like an anonymous famous quote said, “Retirement is a time to enjoy the things you never could before.”
Now, if lounging around all day sounds like paradise to you, then more power to you. In other words – if your primary retirement goal is to be able to just relax in your recliner all day with an open schedule and enjoy at-home leisure with your retirement money, sports, movies, music, food, and entertainment, then you can plan for that.
However, many people who are drawn even to that very simple form of retirement fail to fully take advantage of the opportunity once it arrives. If you have assets worth $5 million and above, then we can help you out. Click here to arrange a free consultation with us.
Your first and most critical step in retirement planning is deciding how you want to use your time and money in retirement. Some questions to get you thinking:
• Are there any places to which I’ve always wanted to travel?
• Where do my relatives live, and how often do I want to see them?
• What life experiences on my ‘bucket list’ remain undone?
• Is there a hobby I’ve always wanted to work on but never had time?
• What local, national, or global issues do I care about enough to give time and money to them?
• Are there any organizations I’ve wanted to get more involved in, like churches, boards, clubs?
• Should I consider mentoring or coaching young people in my areas of expertise?
• What expenses am I anticipating? Are there any I’m not anticipating that could happen?
• Do I have relatives I’ll need or want to take care of financially?
• What is the status of my real estate holdings, and do I want them to change?
• Any large purchases or home improvement projects on my mind?
Do you see how, when you really start thinking about it, there is an almost endless list of things you could do once you retire? Some activities take more money; some take less.
It’s your time. These are your relationships. This is what matters to you. Define your retirement goals on these terms, and from there, you can continue with your retirement planning, including investment and life insurance planning. For more information, use this 3-step retirement planning guide for high net worth families.
How Do I Know if My Retirement Income Will Be Enough?
Planning for what you want is one thing. But planning for what you might end up with is another. Not everything will go your way in retirement. And some things can happen that drain your retirement savings and investments faster than you expected. If you also live longer than expected, even wealthy retirees can run out of money too early without careful retirement planning.
Some income drainers are external. Think recessions, market volatility or market condition, pandemics. Some are internal to your life and family, like divorce, unplanned medical costs for you or for relatives, lawsuits, and poor investment and retirement planning.
To ensure you have enough money throughout your retirement, you must plan for both scenarios – the things you want to do and the things you might have to do.
For instance, divorce may feel extremely unlikely. But what if it happens to a close relative? You might have to step in — stranger things have happened. To learn more about our portfolio and retirement planning techniques, click here to read our guide on improving portfolio performance for high net worth investors.
Did you know there are ways to protect your retirement accounts during a divorce? One step is to get a QDRO (qualified domestic relations order), which spells out who gets what from which accounts. There are also tax consequences that can eat you alive in a divorce. See 7 ways to protect your retirement accounts in a divorce.
To secure your income in retirement and be sure you have enough, it all boils down to having the very best and most customized portfolio and investment plan.
This is something only a private, independent wealth manager can create for a high net worth family or investor and carefully elaborate the retirement planning steps. Big banks and large investment firms don’t do this sort of work – not at the level you will need if you want a secure retirement income for life that supports the way you hope to live.
What makes a good investment plan? A good plan will do much more than simply presume an average annual rate of return and build the rest around that. This is what almost every large firm and even many independent financial advisors and wealth managers do. Besides, they should be a member of Financial Industry Regulatory Authority or FINRA.
Why doesn’t this work? Because averages are largely meaningless. If the market goes up 1% one year and 19% the next year, the “average” is 10%. But so what? You only made 1% one year, and that means the retirement income you took out in that year is gone and has imperiled your long-term financial security. Make sense? You don’t ‘get it back just because you earned 19% the next year.
The point is, average rates of return don’t protect your retirement income. See some smart tips for maximizing investment performance while minimizing losses.
If you have high net worth and are committed to optimizing your investment performance, we strongly recommend this free eBook, Improving Portfolio Performance, the Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.
Generating Income in Retirement
- Systematic Withdrawals
- Fixed-Percentage Withdrawals
- The 4% Rule
- Fixed-Dollar Withdrawals
So how do you determine your income in retirement?
Even if you have 25 retirement accounts sprinkled around – 401k, IRA, pension, Social Security, Roth IRA, 403b, company stock, brokerage, and any other type of investment – the ‘holy grail’ of retirement income is to get just a single deposit each month, correctly formulated. This is the most requested retirement income experience from our high net worth retired clients.
The problem is, properly managing all your accounts so you can produce a single monthly income amount is really hard, as you’ll see in a bit. That’s one of the main reasons people come to wealth managers like us. Our team at Pillar Wealth Management has developed a precise retirement planning process that delivers the income certainty in retirement our clients want. We do all the work, and you get what you want – a single monthly deposit. Find out more – schedule a quick opening call with a founding wealth manager from Pillar Wealth Management.
If you try to do this yourself, it gets very complicated, very quickly.
Why? Because you have two powerful adversaries working against you. And the older you get, the more fierce they become. These two adversaries are required minimum distributions (RMDs) and taxes.
What is a required minimum distribution?
Congress has changed the ages for this and may do so again, but right now, at age 72, you are required to start withdrawing money from many of your retirement accounts. If you fail to make withdrawals of the proper amount, the IRS will hit you with a 50% tax penalty on whatever else should have been withdrawn. Yes – 50%. They’ll take half.
The complicating factor here is your other adversary – taxes. If you are interested in learning more about these hidden costs of investment and wealth management, click here to chat with one of our ultra-high net worth financial advisors.
If you make too much money in retirement, you bump into a higher tax bracket. That’s why you can find an endless trove of strategies for how, when, and how much to withdraw from all your various retirement accounts in the years leading up to when RMDs kick in and afterward.
It’s a mess.
If you want to jump into that mess, a key step is to decide on a withdrawal strategy from your various accounts. Here are four common withdrawal strategies people use:
1. Systematic Withdrawals
In this approach to retirement planning, you withdraw the income generated in your investment portfolio, including interest and dividends. So, suppose you have $1 million in a particular IRA, and it produces $80,000 growth in one year. Doing systematic withdrawals, you would withdraw all or part of that $80,000 but no more. The next year, it might make $90,000, and just $50,000 the following year. You would adjust your withdrawals accordingly.
2. Fixed-Percentage Withdrawals
Here, in retirement planning, you choose a percentage of your total portfolio to withdraw each year. The idea here is to withdraw less than the expected rate of return, so your accounts continue to grow in value. If your account seems to grow by at least 5% each year, you might withdraw 4.5%.
3. The 4% Rule
The 4% rule is a particular example of the fixed-percentage approach. But this one caught on some time back and became a general retirement planning recommendation that many financial advisors and retirees use. Its advantage is that you stick to it no matter what your accounts are doing because over time, it seems to maintain overall portfolio net worth values pretty well.
In other words, retirees using this approach often find that the 4% they take out each year comes back through continued growth, so their overall account values don’t drop.
4. Fixed-Dollar Withdrawals
Unlike a percentage, now you’re withdrawing a certain dollar amount each time period. This is a simpler approach because you don’t have to do as much math, and taxes can be withheld automatically, much like a paycheck. So, you might just take $20,000 per month, flat, no matter what your accounts are doing.
All of these withdrawal strategies have their place in retirement planning, along with their advocates and critics. We’re not here to get into the details of those debates.
Why None of These Are Simple
The larger point remains – doing all this retirement planning yourself will be difficult. For example:
Suppose you’re 60, and you want to use the ‘simple’ 4% rule. You have a Roth IRA, two traditional IRAs, a pension, Social Security, and a 401k, all with various amounts of money in them.
The RMD rule will kick in at age 72 for all those accounts except the Roth and Social Security. That means you have 12 years until you’ll be forced to withdraw a certain amount of money as income.
Are you going to just withdraw 4% from all the accounts starting at age 60?
The problem with that is, you might deplete your Roth IRA early but still have large amounts in your other accounts when you reach 72. And now that you have to withdraw what the government says, you might reach a higher tax bracket and have to pay more taxes.
This is why you’ll sometimes hear retirement planning recommendations to deplete the RMD-vulnerable accounts first and leave the Roth alone. We’ll talk about the pros and cons of these types of accounts in a bit.
You’ll also hear about rollovers. What’s a rollover? It’s when you take an account like a 401k and transfer all the money into a Roth IRA or some other type of retirement account. We’ll discuss rollovers more in a moment too.
But consider some of the factors that affect the decision to roll over a retirement account:
• Which accounts are you transferring from and to, and why those?
• Is there a time limit on when you have to complete the rollover, and what happens if you miss it?
• What if you inherit the retirement account from a spouse, parent, or other relatives?
• Does the money come to you first, or go straight into the new account? Does it matter?
• Can you do the rollover while still employed? Does it matter?
Feeling suddenly overwhelmed about retirement planning?
Guess what – ALL of those issues matter. The answers are not simple. They vary for each person, each situation. We won’t even attempt to discuss them here.
The point of all this is simply this: Generating your income in retirement is not simple, clear, or straightforward. Do it wrong, and you can get fined, penalized, and taxed.
Is that the retirement planning experience you’re hoping for?
Retirement Planning at a Younger Age
- Responding to the Unexpected
- The Most Important Question
- More Investment Performance Secrets
Let’s get to some more specific questions related to retirement.
With high enough income and net worth, you may feel like retiring earlier so you can enjoy more of your life. And plenty have achieved this, retiring in their 40s or even 30s in some cases. But even retiring at age 50 requires some extra-smart financial and retirement planning.
Consider that if you lived to 90, you would be retired for 40 years. That’s more years of your adult life than you worked. Can you maintain enough income in retirement for 40 years? Even for someone with over $10 million in savings, that is far from an easy task.
For anyone interested in retirement planning, we created this 29-point retirement checklist. It walks you through four areas:
• What you have
• What you owe
• Your plans and goals
• What you should be doing NOW – strategies for retirement planning.
No matter at what age you plan to retire, working through that checklist as part of your retirement planning will set you up for the enjoyable, secure, fulfilling, and worry-free retirement you want.
1. Responding to the Unexpected
Why is it important to know what’s in your control? Because when things happen outside your control, adjusting these five areas is how you must respond to it so you can maintain the security of your retirement.
An easy example:
Suppose you have three kids and plan to leave $2 million to each of them in various trust accounts after you die. Then a recession hits when you turn 75, and your spouse has a medical crisis that costs tons of money. Your retirement accounts are decimated.
One possible response to this is to lower than $2 million number down to $1 million per child. Now, just like that, you have $3 million more to work with in response to these unplanned challenges – without affecting your own lifestyle at all.
2. The Most Important Question
The question that determines your retirement security is – how will you know at that moment what move to make in response? How can you know how it will affect your long-term security?
Retirement living will not go as planned. How will you respond without jeopardizing your future?
That is why working with Pillar Wealth Management is something you should strongly consider if you meet our required minimum. We have created a proprietary, 100% customized retirement planning process that answers questions like this – definitively, precisely, and with clear numerical projections and hard data.
To learn more about how we do this for families with $5 million to $500 million in liquid assets, reach out to us today for a free opening call.
If you know you need help for retirement planning from a financial professional but aren’t ready to talk to a live person, again we recommend The Ultimate Guide to Choose the Best Financial Advisor, for Investors With $5 Million to $500 Million in Liquid Assets.
3. More Investment Performance Secrets
One component of investment performance – a key to effective retirement planning for everyone, but especially younger retirees – is avoiding risky bets and unwise investments. For the most secure retirement income, here are a few investment opportunities to generally avoid:
• Annuities – almost always rife with fees and poison pills
• Stocks in individual companies – don’t stake your retirement on one company
• High fee and high-risk mutual funds and ETFs
• Angel investment, hedge funds, venture capital – the returns for most people are abysmal
• Any financial advisor or wealth manager who tries to push you toward risky asset allocation as part of your retirement planning.See 10 high net worth retirement mistakes to avoid at all costs
Should I Roll Over My 401 K Before Retirement?
If it hasn’t happened already, you will probably be encouraged at some point to roll over a 401 k, 403 b, traditional IRA, and sometimes even pensions, into other types of retirement accounts.
And sometimes it’s a smart move to make. But if you recall back to the section on retirement income, you have taxes and required minimum distributions to consider in all these sorts of decisions.
Taxes are one of the primary motivations for doing a rollover.
In a 401 k, or a traditional individual retirement account (IRA), the money you’ve put there has not yet been taxed. It was deposited there from your paycheck before taxes were withheld. So that money, and all the investment growth it has accrued, will be taxed when you withdraw it.
When can you retire?
You can retire as soon as you can afford it! Americans need to be at least 66 years old to start receiving their full Social Security benefits, but at age 62, they can claim reduced benefits.
Some people may retire early because they want to retire and can afford it, but after a while, they may decide to go back to work. Some people resume working part-time.
So, it’s important to think about what you plan to do when you retire—you’ll have lots of time on your hands. One option is to reduce your working hours gradually as you adapt to a new lifestyle.
The 5 steps of retirement planning
Decide when to start retirement planning
Start planning for retirement as soon as you can, which means saving as much as possible. In retirement, you’re likely to need more than Social Security benefits to meet your day-to-day needs.
Establish good spending and saving habits. Don’t make unnecessary purchases that only reduce the amount you can save.
Estimate how much money you need to retire
By tracking your expenditures, you can estimate how much money you will need in retirement. Keeping track of how much you spend daily, weekly, and monthly for a year is a good start; several years is better, giving you an estimate of your expenses for an average year. Use that figure, along with your expected lifespan, to calculate how much money you need to accumulate for retirement. You’ll probably need less because statistically, your spending will decline as you age.
Other financial goals
Beyond saving for retirement, you may have other financial goals. If you have debts, a financial planner could help you manage your debt. You may also want to invest a portion of your savings.
Choose a retirement plan
Take advantage of a 401(k) provided by your employer, or an IRA if you are self-employed. Your employer may make matching contributions up to 3% of your salary, and your contributions are tax-deductible.
Select your retirement investments
Your employer 401(k) may not invest in all the vehicles in which you may be interested, but you can have multiple retirement accounts, which allows you to diversify your investments. You can then invest in mutual funds, index funds, exchange-traded funds, and individual stocks and bonds. In your 20s and 30s, you can take on more risk in your investment approach, then move to more conservative investments as you get older. By the time you retire, you should have a steady income stream to replace your income from work. For example, annuities provide income for life.
Pillar Wealth Management, all rights reserved, has assisted many clients and individuals who have $5 million up to $500 million to get the best retirement planning from us. By using our services, you will enjoy your retirement days, traveling around the world or pursuing other activities. Pillar WM wealth managers will help you to achieve what you want. Access our website and get a free consultation now.
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.
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