4 Surprising Insights about High Net Worth Retirees

High Net Worth Retirees

Wealthy Retires Can Struggle in Retirement

Did you know that only 13 percent of workers are very confident of having enough money to live on when they stop working[1]? That percentage is low even for people who have a high net worth. So let’s reveal some truths about retirees and workers who will soon face retirement.

Insight #1: Wealthy People Often Struggle In Retirement

I’ve seen it many times. Some wealthy people fail to understand the serious financial challenges that even their high net worth can’t protect them from when they retire.  They don’t see the many factors that can destroy financial comfort for anyone: outliving assets, withdrawing funds too quickly, surviving a financial surprise, underestimating the retirement savings they’ll need, the dramatic impact even low inflation can have on their portfolio, etc.

High net worth individuals usually underestimate the need for long-term care and nursing home insurance. They may not realize how high medical costs can be in retirement. And many people of high net worth don’t focus enough on the risk posed by inflation. In 20 years, a 4 percent rate of inflation can reduce the buying power of one dollar to just 45 cents[2].

Insight #2: Without Planning, High Net Worth Tends To Become Low Net Worth

Once we retire and stop earning (but are still spending), it’s easy to go through a large estate surprisingly quickly. Even an estate of $10 million can erode with annual spending of $400,000 or $500,000 after taxes.

Imagine you’re a 45-year-old doctor and you make $250,000 a year. You plan to retire at age 65 and want to maintain your current lifestyle. You would likely need $3,000,000 in liquid assets when you retire[3].  The $3M figure surprises many clients.

Insight #3: Many High Net Worth People Focus Too Much On Wealth Accumulation

Some people spend their careers doing a great job of earning money, saving money and investing money. But when they reach retirement they’re ready to coast and stop thinking so much about finances. Money is like ocean waves breaking on the beach. Money can flow in majestically and it can just as easily and dramatically flow out. Wealthy people still require a dependable income stream in retirement. It’s the best way to sustain wealth. Wealth accumulation is great but wealth maintenance is equally important.

Part of the reason for this lack of focus on wealth maintenance in retirement is a misconception about the length of retirement. Gone are the days when you could plan for a 10 year retirement. Most people will live in retirement much longer than that. We need to generate a retirement income stream that will provide income that will last 20 – 30 years. Some people will live in retirement longer than they lived in the work world. And if both you and your spouse are age 65 there’s more than a 70 percent chance that one of you will live at least until age 85[4].

Insight #4: The Wisest Live As If They’re Much Poorer

This last truth is perhaps the most important. This truth was best revealed years ago in the Thomas J. Stanley and William D. Danko’s bestselling book, “The Millionaire Next Door.” Smart high net worth people live below their means (think Warren Buffett). They are often unassuming and modest and show no signs of luxurious spending. They don’t showcase their money—they save and invest it.

Whatever your current net worth status may be you need to practice good financial management.  Realize the retirement can be a struggle even for the wealth without proper planning. Understand that you will still need a stream of income in retirement that will prevent you from outliving your assets. And regardless of your wealth, live below your means not on the edge of what you think you can afford.

5 More Surprising Insights about High Net Worth Retirees

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5 More Surprising Insights about High Net Worth Retirees


[1] Employee Benefits Research Institute (EBRI), 2011 Retirement Confidence Survey, March 2011

[2] ING North American Insurance Corporation, 2007

[3] The Retirement Income Gap, Christi Edwards, Morgan Stanley, 2012

[4] http://www.forbes.com/sites/ashleaebeling/2012/08/10/americans-clueless-about-life-expectancy-bungling-retirement-planning/

 

Was this of value? Can I help you think through any retirement issues? Please feel free to call me, Gene Offredi, CFP, RFC, at 203.453.1017 or visit our website at Summit Investor Coach.