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 living, whatever your net worth (especially if it’s $5 million or $500 million), you’re apt to have some concerns about retiring. If your portofolio of liquid assets exceeds $5 million then you may want to read our wealth management and retirement planning book to help you feel more secure down the line.
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 retirement.
Table of Contents
How to Stop Worrying about the Uncertainty of 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 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 convenient 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 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 First 3 Steps to Setting Your 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 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.
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 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 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 for many. Why?
Because they failed to make a plan. A wealth manager can help you make the best possible 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.
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 retirement plan, and we can develop a plan that optimizes your investment performance and enables you to live out your plans and dreams.
Know Your Income Sources in Retirement
With your 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 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?
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 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?’ 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 retirement planning process.
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 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 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.
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