Unfortunately, nobody is exempt from the worry that often accompanies planning and budgeting for retirement. This remains true even if you are a part of a high-net-worth household.

While high-net-worth individuals may have more options and choices when it comes to saving for the future, it is still important that these individuals accumulate retirement savings over time, understand the challenges they may face in the future, and make a long-term plan that accounts for their retirement goals.

What is a High-Net-Worth Individual, and Why Do They Need to Plan for Retirement?

While there is no industry-recognized definition for a high-net-worth-individual (HNWI), this term often describes individuals with more than one million dollars in investable assets, not including real estate. However, this term can also apply to individuals with investable assets worth more than five or ten million dollars.

Due to their wealth and extensive assets, it’s normal for these individuals to have complex and extensive portfolios. These intricate portfolios can make things even more complicated when planning and preparing for retirement. As a result, it is often a good idea for HNWIs to reach out for assistance when it comes to planning for their future.

How Much Do You Need to Retire Comfortable?

Individuals who are retired, by definition, generally aren’t working long hours or performing other tasks that might lead to a steady paycheck. This means that retirees must fund their lifestyles entirely through their savings and alternative sources such as Social Security or a pension.

However, funding a lifestyle through savings withdrawals can become risky if unexpected expenses such as medical bills require that you dig deep into your retirement funds. Since you will be living off the interest, dividends, and appreciation of your savings, withdrawing from the principle can adversely affect how much you can safely withdraw for the remainder of your retirement.

For these reasons, one of the first things you need to do as you plan for retirement is to determine your desired annual retirement income. For many, this can mean a percentage of their current income (between 60% to 90% or more), or others will prefer to follow other saving guidelines where they will want to have ten times their salary in their savings. 

However, while these two approaches may be a good rule of thumb, they do not necessarily plan for specific situations or events for which you want available funds. As a result, as you are calculating these retirement funds, it will also be a good idea to figure out your annual retirement expenses. While you can use your current costs to start, you must remember that these expenses can change dramatically, especially when you retire.

As a few common examples, you may want to consider inflation and changes in how much certain essentials cost, changes in your mobility needs (such as having to pay for a larger vehicle), new health concerns, long-term care, and more.

Put simply, your goal should be to match your expected spending to the amount you can safely withdraw from your accounts at every point in your retirement. While you can’t plan for everything, having a ballpark idea of how much you’ll need to comfortably retire can help you gauge how much you’ll need to contribute as you fund your savings accounts.

For example, if you withdraw at a sustainable spending rate of around 4%, an account with 1 million dollars will leave you with an annual income of $40,000 per year. If you believe your expenses in retirement will be higher than this income, you may want to either increase the amount you have saved, decrease your spending allowance, or find a way to get income from another source. 

Figure Out What You Want to Do With Your Future

Outside of expenses, it is also important to determine what a happy retirement means for you and your family. Not everyone may want to sail around the world when they finish work, but travel can still be an important part of their retirement, especially since your schedule will open up significantly during this time. 

For these reasons, you may want to create a list of what you want for your future, which may include:

  • Taking a vacation every year
  • Spending more time with family and friends
  • Helping your kids or grandkids with school or new business ventures
  • Picking up new hobbies
  • Buying a boat or a second vacation home

Although this may seem excessive, especially when you still have some time before retirement, it is important to prioritize yourself and the activities that will keep you occupied for the decades you’ll spend in retirement. This will allow you to plan and have the funds needed to enjoy these years. 

Know All Your Retirement Income Sources

In addition, to listing your future needs and plans, you will also want to determine all the sources from where your income is coming, including retirement accounts, cash accounts, Social Security, Pensions, investments, and real estate.

After you have all this information, it will be easier to start developing a reliable retirement plan.

Think About Taxes and How They Will Affect Your Retirement

Sadly, retiring does not stop taxes from eating up your capital. And as a high-net-worth individual, you are at a higher risk of paying more capital gains and taxes than others. This fact is why minimizing your taxes in retirement is so critical.

Some things you may want to consider doing are:

  • Investing in an HSA that allows you to make tax-deductible contributions 
  • Choosing tax-saving retirement accounts like IRAs and try to maximize your contributions 
  • Thinking about the state where you want to retire, as some states are more tax-friendly than others
  • Not withdrawing money from certain accounts before you are allowed to, so you can avoid penalties

Find a Retirement Planner for High-Net-Worth Individuals

While tackling the retirement planning process is doable on your own, you need to keep in mind that determining your future income needs is not easy. There are often several factors that can negatively hinder your ability to secure the funds you need. 

As a result, before you make any plans, you may want to discuss your options and future retirement needs with professionals. At TSP Family Office, we are here to help our clients create a legacy, uncover hidden wealth, and maximize their tax savings, assets, and future opportunities. If you want to learn more about your retirement options or create a personalized retirement approach to your unique solution, contact us today or call us at 772-257-7888 and learn how our experts can provide you with the help you need.

Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To the extent any of the content published may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Consult your adviser about what is best for you. Any tax or legal information is provided for general informational purposes only; consult your tax adviser or attorney for issues regarding your specific circumstances