Retirement Planning Tips for the $2M+ Wealth Investors

Retirement planning has evolved with the changing dynamics of wealth concentration. Over the past decade, the paradigm has shifted significantly. Households aged 55 and over control $51.4 trillion, attributed to the rising concentration of wealth. Among the 129.8 million U.S. households with $69.7 trillion in investable assets, 5.5 million households with $2 million-plus control $45.3 trillion in investable assets.

Income brackets define an investor’s position. Sub-High-Net-Worth Individuals (sub-HNWIs) have less than $1 million but more than $100,000 in liquid financial assets. HNWIs have up to $5 million in liquid financial assets, and very-HNWIs own beyond $5 million in liquid financial assets. Ultra-HNWIs have liquid financial assets surpassing $30 million.

Since HNWIs have substantial assets, a greater amount of deliberation and planning is needed concerning their retirement needs. It is advised that you consult with a wealth advisor who can guide you on how to effectively plan for retirement and secure your financial future. This article will cover retirement planning tips for the $2 million-plus category.

Understanding the $2 million-plus wealth category

A recent survey delved into various segments within the $2 million-plus wealth category, unveiling intriguing insights. The study focused on three distinct groups – those in the $2M to <$5M (non-retired market), $2M to <$5M (retired group), and the $5M-plus market.

The $2M to <$5M non-retired households are primarily concentrated in major metropolitan areas. Their financial aspirations differ from the $2M to <$5M retired group. They aim to have ample funds to work less or enjoy their time in later years rather than retiring outright. They prioritize paying off mortgages and generating income from investments. This group faces more challenges in financial tasks and leans more on employers, online resources, and family for advice. They also show an inclination toward Exchange-Traded Funds (ETFs).

The $2M to <$5M retired group typically resides in non-metropolitan areas. They may lack investing experience and require help with critical financial goals like retirement.

Geographically, the $5M-plus group has an even distribution, slightly favoring smaller metro areas. Notably, around half of households with $5M-plus wealth prefer to make decisions and manage money independently.

Why is retirement planning important for the $2M-plus wealth investors category?

It is important for $2 million net worth investors to take proactive steps to secure their financial well-being. It can help them maintain their desired lifestyles, navigate tax complexities, and leave a legacy behind for their loved ones.

Sustaining your desired standard of living after retiring is crucial. The complexity of being in a higher wealth group necessitates a well-crafted retirement plan that effectively manages your assets, liabilities, and income sources. Securing your financial stability throughout retirement is also essential, considering factors like longer lifespans and increasing healthcare needs. Retirement planning can help you safeguard your accumulated wealth, optimize investments, counter longevity and sequence risk, and address business succession and legacy goals. It can enable you to customize strategies for your diverse investments, handle market changes, and maximize retirement benefits to transition into retirement and secure your financial future smoothly.

5 retirement planning tips for $2 million+ net-worth wealth investors

1. Calculate your retirement savings goals 

One of the most critical aspects of retirement planning is determining how much you need to save to cover your expenses and maintain your desired lifestyle throughout your retirement years. Start by understanding your current monthly and annual expenses. This includes fixed costs like housing, utilities, insurance, and healthcare and discretionary spending, like travel, hobbies, and entertainment. Project how these expenses might change in retirement. You must account for potential decreases in certain discretionary spending areas and amplified essential costs like healthcare. Research from the Center for Retirement Research at Boston College indicates household consumption declines slightly during retirement. You may want to factor in an estimated reduction in your spending as you progress through your retirement years. As a high-net-worth individual, your spending patterns might not decrease as significantly as others, but accounting for a potential reduction can help refine your savings goal. 

Factor in potential retirement income streams, such as Social Security benefits, pensions, rental income, investment returns, etc. Estimate life expectancy to determine the duration of your retirement and how long your savings need to last. You can use resources like the Social Security Administration’s Life Expectancy Calculator to get an estimate. 

It is also important to regularly review and adjust your estimates as your circumstances evolve. Your retirement savings goal cannot always be a fixed number. Changes in lifestyle, health, and financial conditions may impact your expenses and savings needs. 

2. Follow a diversified investment strategy to mitigate risks and enhance potential returns

High net-worth individuals with assets worth $2 million or more often have accumulated significant assets over their lifetimes. If you plan on living off the interest of $2 million dollars, you must maintain a well-diversified portfolio. Diversification can help protect and preserve this wealth by preventing excessive losses in a market downturn or economic crisis. Diversifying your investment portfolios in retirement planning can help spread risk across various asset classes and investments. By diversifying, you reduce the impact of poor performance in any one investment on your overall portfolio. This is especially important if you have a significant portion of your wealth tied up in a single asset, such as a business or real estate. Financial markets can be volatile, and even seemingly stable investments can experience sudden drops in value. Diversification can help buffer your portfolio against the fluctuations that come with market volatility.

Another thing to note is that you may have a longer retirement horizon due to better healthcare and longer life expectancy. With a substantial net worth, you may even decide to retire early. Diversification helps ensure that your portfolio can sustain you through decades of retirement without running out of funds. It can also help maintain your purchasing power as the cost of living rises.

A well-structured and diversified portfolio can provide a foundation for financial security and peace of mind during retirement. It is important to note that diversification does not eliminate all risks, but it does help manage and mitigate risks to a certain extent.



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3. Incorporate real estate into your retirement planning strategy for a well-rounded approach to wealth accumulation and preservation

While stocks, bonds, and mutual funds are valuable tools for wealth accumulation, real estate offers distinct advantages that can enhance your retirement portfolio. Real estate not only provides avenues for growth similar to traditional investments but also offers unique benefits that align well with the financial goals of the $2 million net-worth group.

Much like stocks and bonds, real estate values demonstrate a propensity for steady long-term growth. But unlike stocks and bonds, real estate investments provide the satisfaction of owning tangible assets. Owning physical properties can offer a sense of security and control that intangible investments might lack. Moreover, these properties have intrinsic value and can be leveraged in various ways, including generating rental income and acting as collateral for financing. Real estate investing offers the potential for passive income generation. Owning rental properties allows you to receive consistent rental income, which can supplement other sources of retirement income. This can offer financial security during retirement and contribute to maintaining your desired lifestyle.

Including real estate in your investment portfolio can offer diversification and risk mitigation. Real estate is known for its relatively lower correlation with traditional financial markets. Real estate values move independently of stocks and bonds. This helps stabilize your portfolio against market volatility. Diversification across multiple asset classes, including real estate, can enhance the resilience of your portfolio against economic fluctuations. Real estate can also serve as an effective hedge against inflation. Property values often appreciate inflation. Rental income from real estate properties also tends to increase over time, protecting your purchasing power in an inflationary environment.

4. Plan for medical expenses and long-term care in retirement

Healthcare costs and the need for long-term care assistance in later years are two areas that require careful attention in your retirement planning strategy. A study by the Employee Benefit Research Institute (EBRI) found that retirees may need substantial savings to cover medical costs, including premiums, deductibles, and prescription drug expenses. Understanding the potential costs and exploring strategies to address your medical needs can contribute to a comprehensive and well-prepared retirement plan. One tax-efficient way to save for medical expenses is through a Health Savings Account (HSA). If enrolled in a high-deductible health plan, you can contribute to an HSA and invest a portion of your balance.

According to the statistics from the Administration for Community Living in 2020, 70% of seniors aged 65 are likely to need long-term care services in the future. Women tend to stay in long-term care facilities for an average of 3.7 years, while men have shorter stays, averaging 2.2 years. You must consider these statistics when crafting strategies that address potential long-term care costs and ensure financial security throughout your retirement years. The decision to opt for long-term care insurance depends on your circumstances and wealth.

High-net-worth individuals may have the financial means to self-fund long-term care expenses. However, insurance can provide a safety net and protect your retirement savings from unexpected care needs. Long-term care insurance mitigates the financial burden of services like homemaker care, home health aides, assisted living facilities, and nursing homes. Planning for various scenarios, from minimal to severe care requirements, can prepare you to handle these financial implications.

5. Include legacy planning and business succession to secure your loved ones’ future and preserve your wealth

Legacy planning includes strategies to minimize estate taxes, transfer assets to your heirs seamlessly, and ensure the smooth transition of your business to newer leadership. Legacy planning and business succession involve intricate legal, financial, and tax strategies. You must consult with estate planning attorneys, financial advisors, and tax experts specializing in high-net-worth clients. They can help you structure your legacy plan to align with your goals while navigating complex regulations.

If you own a business, you must focus on effective succession planning to ensure its continued success after retirement. Consider who will take over the business and whether you want to sell, transfer ownership, or maintain a role in the company during your retirement. Develop a clear plan that addresses management, ownership, and legal or financial complexities.

Changes in laws, regulations, family dynamics, and financial conditions can impact the effectiveness of your legacy plan. In 2022, the estate tax threshold was $12.06 million for single taxpayers and $24.12 million for married couples. In 2023, these limits were increased to $12.92 million for single taxpayers and $25.84 million for married couples. In 2022, the gift tax exclusion limit stood at $16,000. In 2023, it increased to $17,000. Understanding the federal estate and gift tax limits and other changes in laws and taxes is crucial for legacy planning. This can help you transfer wealth while minimizing estate taxes.

To conclude

Retirement planning for the $2 million-plus wealth group requires a customized and holistic approach that takes into account the unique financial circumstances and goals of high-net-worth individuals. It is important to maintain a focus on budgeting, diversification, legacy, and business succession planning. This can help you reach the ultimate goal of sustaining your desired standard of living while navigating the complexities of tax implications, longevity risk, and healthcare needs. You may better navigate retirement planning through meticulous planning, proactive strategies, and the guidance of financial experts.

Use the free advisor match service to find a financial advisor near you who specializes in retirement planning. Answer some simple questions about your financial needs, and our matching tool will connect you with 1-3 advisors who can best fulfill your financial requirements. 

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