Why Most Rich People Can't Afford to Retire

Here’s the scenario:

You have got more than $1 million in investable assets. Maybe it’s $5 million. Maybe it’s $10 million.

You’ve worked hard to build that wealth, and you’re thinking about retirement in the next 5 years or less.

Unfortunately, relying on your savings won’t be enough if you want to live the life you’re accustomed to (and deserve).

Wealth accumulation is just one part of the journey; effective tax planning and retirement income planning, among other strategies, may help you to enjoy the fruits of your labor without financial worry in your later years without draining your bank prematurely.

We’ve worked with many of families in your exact situation and without a proper financial planning strategy, even the most rich families are at risk of running out of money.

Here are the 6 main things that can complicate your retirement situation, and what we aim to do to make sure it doesn’t become a problem.

1. Taxes: Your Biggest Retirement Expense

What most people don’t think about or acknowledge is the fact that taxes are going to be their biggest expense in retirement. Especially for those in higher tax brackets. 

We look at many factors to try to minimize lifetime tax liability, such as:

• Executive compensation planning - when will you receive those funds, and how will they affect your tax liability for that year?

• Capital gains taxes on the sale of investments or untimely distributions from mutual funds

• Income taxes - with all the debt this county has, management of tax brackets will be key

• 401(K)s or IRAs - upward of 30% to 40% of your 401(k)/IRA’s may go to the government in taxes.

• Deferred compensation plans - another key planning item is timing.

• Health Savings Accounts - GIANT opportunity here.

Understanding the complexities of all the above factors is key to developing a strategic withdrawal plan to not pay more in taxes than you have to. This might mean balancing withdrawals from tax-deferred accounts like 401(k)s or IRAs with those from taxable accounts to take advantage of available tax strategies. 

What do the RICH do so they can retire?

• The RICH work with CFP®’s and CPA’s to create effective tax planning.

• The RICH plan over the long run. Paying less in the short run is hard, but paying less over the long run is much easier.

• The RICH pay only what they are required without leaving the government a tip.

2. Debt: The Silent Wealth Drain

For many, retirement means shifting from earning a salary to relying on accumulated wealth and investment strategies to create income for life. The focus moves from wealth accumulation to cash flow management—ensuring your outgoings are covered by portfolio income and savings. High levels of debt and macroeconomic factors can sabotage this shift, such as:

• Multiple Mortgages: With multiple properties and variable interest rates, debt management on homes and properties can become complex.

• Home equity lines of credit (HELOC)

• Decreasing likelihood of refinancing as rates normalize

• Unsecured loans (personal loans, credit cards, student loans)

A few financial planning strategies that can simplify a complicated debt situation:

• Getting a secured line of credit backed by an investment portfolio as security to get a lower interest rate. This can be an efficient way to manage cash flow without selling off investments prematurely.

• Consolidating expensive credit card debts by taking out a lower-interest home equity line of credit (HELOC). This can significantly reduce your interest burden from double to single digits.

What do the RICH so they can retire?

• The RICH seek to discover opportunities and guidance from CFP® professionals.

• The RICH tend to reduce debt as retirement is approaching.

• The RICH take risk during their wealth accumulation years to grow the accumulated wealth at retirement.

  
  

  
  

3. Expenses & Inflation: Living Large Needs Large Planning

Most rich people are accustomed to a certain quality of living. Maintaining that luxurious lifestyle in retirement requires precise planning.

What are your lifestyle expenses?

• Vacations

• Houses

• Cars, Boats, Airplanes

• Jewelry

• Dinners & Drinks

• Etc.

Consistent Spending: If you’re accustomed to a high standard of living—say, spending 75% of your income regardless of whether it’s $100,000 or $1 million—you need to understand exactly how much you need to maintain that lifestyle once you stop working.

Understanding Your 'Number': We help clients calculate their ‘number’—the amount of assets needed to retire comfortably while maintaining their desired lifestyle. This often reveals how much more they need to save.

Inflation: No one can predict the future level of inflation. What we do know is that inflation has been a consistent part of our economy for many years. In the United States, the long-term rate of inflation has averaged a bit more than 3 percent. At a 3% inflation rate, prices increase by 25% every ten years. This is why a retiree's income plan should seek to generate income that keeps pace with rising prices. 

What do the RICH do so they can retire?

• The RICH seek counsel and guidance from CFP® professionals; they know their “Number”

• The RICH tend to save first and spend second.  The RICH have a budget

• The RICH plan for larger purchases and are strategic on how to pay for them

  
  

  
  

4. Timing: Don't let “LUCK” and “HOPE” be the plan

Luck may seem like a random factor, but when it comes to rich investors, it can make or break your retirement dreams. Imagine the difference between retiring in a booming market versus a downturn—your income stream could vary drastically.

Market downturns, especially in the early years of retirement, can pose a serious threat to your financial security throughout retirement. 

Timing is everything, sometimes down to the very month you choose to retire.

What do the RICH do so they can retire?

• The RICH seek help and guidance from CFP® professionals

• The RICH align investments to produce monthly income from less risky investments for the first 5 to 10 years of their plan.

• The RICH get started early.

  
  

  
  

5. Longevity: Modern medicine allows for a longer quality of life

You may not think that living a long life amounts to a financial risk that requires prudent management. But the truth is, that longevity risk can be a significant economic challenge. No retiree stops needing income.

What do the RICH do that can retire?

• For the RICH, awareness is the first step.

• The RICH seek help and guidance from professionals.

• The RICH plan for longer than expected.

6. Liquidity: Converting Assets Into Cash

Not all assets are easily converted into cash. Whether it’s a business, real estate, or collectibles, illiquid assets can complicate your financial landscape: 

Monetizing Assets: Our planning includes strategies on timing to liquidate or derive income from these assets when necessary to support your cash flow in retirement.

What do the RICH do so they can retire?

• The RICH seek help and guidance from CFP® professionals.

• The RICH plan for when liquidity is needed and have a plan in place.

• The RICH keep meticulous records in order to maximize value.  This is especially important for businesses.

Why the Rich Need Holistic Financial Planning

Each of these areas presents unique challenges, and managing them effectively requires a comprehensive financial plan tailored to your individual needs and goals.

Our expertise in tax-first financial planning allows us to create a roadmap that considers all aspects of your financial life. Helping you to work towards a retirement lifestyle that matches your needs.

Retiring rich means more than just having wealth—it means strategically managing your wealth to sustain the lifestyle you love. We want to make sure your wealth continues to work for you, long after you’ve stopped working for it.

If you’re interested in a free assessment and personalized recommendations for your financial strategy, book a quick introductory call below.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  Please consult a qualified professional regarding your specific situation.

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