A retired woman sit son her front porch and pets a white dog as she plans for retirement as a high net worth person.

How Should High Net Worth Individuals Plan for Retirement?


What's the best way to plan for retirement as a high net worth individual? Here are tips to help you come up with a retirement strategy and protect assets.

You've worked hard and saved diligently throughout your life—but the money game shifts at retirement. For high-net-worth individuals and families (those with at least $1 million in cash or assets that can easily be converted into cash), retirement is a significant shift. That six-figure salary you have enjoyed is no more. Money can go fast if you don't plan for your financial future—and that's especially true with more people living well into their 80s and 90s.

Don’t assume you’ll be spending less in retirement than you do now. You may want to enjoy life more: take yearly travel trips to exotic locations, snowbird at a second home in the Caribbean, remodel your home, and more.

There are more basic considerations, too. For instance, if you retire before you are eligible for Medicare, health insurance costs may be your own to bear until you hit 65. Even then, you'll incur premium costs for Medicare Part B or, if you choose it, Medicare supplemental insurance.

Unexpected events occur, too. Ninety percent of retired and working Americans ages 50 to 70 have experienced some economic or life event that has had a financial impact on their retirement savings goals, according to a survey from Ameriprise Financial.

So, even if you aren’t near retirement yet, don’t wait to start making plans for how you’ll access income and prepare for potential issues when that day comes. Consider: How do you plan to be able to cover the cost of living at the lifestyle that you have come to expect—or better—from what you earned in your high income-producing years? How can you protect against potential financial catastrophes?

Here are some ideas for creating a financially safe and happy retirement:

1. Calculate How Much Savings You Need Now

In a recent survey conducted by The Employee Benefit Research Group, only 42% of respondents have tried to calculate how much money they will need when they leave the workforce. Experts point to a couple of general rules you can follow:

First, multiply your current annual spending by 25 to determine the size of the portfolio you should have in retirement. That means you'll be able to draw down 4% of that portfolio amount every year.

Second, accumulate ten times your final salary in savings to retire at age 67. Of course, you have to take your specific circumstances into account. Online calculators like Fifth Third's Retirement Savings Calculator can help you make the appropriate assessment for you.

2. Choose the Best Tax Benefit Options

Once you don't have to commute to a job, you might want to pack up and move to a state that doesn't tax Social Security benefits, pension income, 401(k) plan withdrawals, and IRA distributions. Some states—Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming—do not tax individual retirement income, while others only levy taxes on dividends and interest.

Whether you head out of town or stay put, though, consider creating a tax-efficient withdrawal plan that lays out which of your assets to use first. Consider a broad tax diversification strategy that balances holdings for which you’re required to pay income taxes annually; those for which you’re only required to pay taxes upon withdrawal/distribution; and those for which you’re rarely or never required to pay income taxes.

Choosing a smart way to withdraw from the right mix of taxable brokerage account funds, tax-deferred retirement plan funds or other accounts can save thousands of dollars each year.

Here's another tip: If you turned 70.5 years old before this year and don't need your Required Minimum Distributions (RMD) from retirement accounts, you can make Qualified Charitable Distributions. That involves a direct transfer of funds from your IRA custodian to a qualified charity, and that counts as your RMD up to $100,000. This also keeps it from counting as taxable income.

3. Create a Social Security Strategy

By delaying your Social Security payments for as long as possible, you can realize a significant increase in monthly payouts. If you've been diligent about building up a retirement nest egg while you've still been taking home that regular paycheck, you may be able to hold off taking Social Security payments until well beyond age 62, when you can begin to collect benefits.

If you start claiming benefits at that age vs. age 66, you'll receive a reduced benefit for the rest of your life (except for cost-of-living adjustments). If you wait until you’re 70, you’ll get an extra 8% per year. But be mindful that if you delay receiving Social Security benefits until after you're 65, you might still need to apply for Medicare benefits within three months of your 65th birthday to avoid paying higher premiums for life for Medicare Part B and Part D.

4. Buy Long-Term Care Insurance

The good news is that people are living longer: lifetime expectancy In the United States in the 20th century was age 78, with women living four to nine years longer than men. Today, it's estimated that half of adults who live to age 65 will live well beyond 85 years.

But not everyone will enjoy good health as they age. So, if you can afford to buy long-term care insurance, you should do it to avoid draining your resources, should you someday need help that isn't covered by regular health insurance. Long-term care insurance generally includes assistance with routine daily activities, like bathing, dressing or getting in and out of bed, as well as the costs of care for chronic medical conditions, disabilities or disorders such as Alzheimer’s disease.

5. Choose Your Wealth Managers Wisely

High-net-worth individuals typically have more complex financial issues. So, it's important for you to work with experienced professionals that can help you increase your assets and preserve your wealth, as well as leave a lasting legacy. An experienced financial planner can carefully monitor and regularly rebalance your portfolio as needed. Advisors should bring expertise in every aspect of planning for your future: asset allocation, alternative investment and hedging/diversification strategies.

With careful planning, you'll set yourself up for whatever retirement future you envision—and position yourself to be able to deal with health or financial challenges if they arise. Thinking through your options in advance can help you plan for a long, healthy and happy retirement.

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