Retirement Mistakes for High Net Worth Investors | SafeMoney

Quick Answer: Discover key retirement mistakes high net worth investors make. Learn how to avoid them and secure your future with safe money alternatives.

Editor’s Note: This is Part 1 of a two-part series on common retirement planning mistakes made by high net-worth investors and households. For more information on the retirement and financial challenges awaiting today’s investors, please consider a review of The New Retirement Report. Many investors have found this resource useful for planning out for their financial futures.

With even more on the line than traditional retirees, high net-worth households need to be cautious of several all-too-common retirement mistakes that can cause a reversal of fortune.

Review these threats with your retirement planning professional or advisor to ensure your plan has strategies to address—and avoid—these potentially costly pitfalls.

Common Retirement Planning Mistakes by High Net-Worth Households

MISTAKE #1: Not preparing for long-term care costs or later-stage healthcare needs.

Have you heard this daunting statistic? A couple retiring now will need an estimated $275,000 to cover health care costs in retirement, according to a Fidelity report. This estimate only applies to those with traditional Medicare insurance coverage and includes account premiums, co-payments, deductibles and out-of-pocket drug costs. (This estimate assumes that both spouses are retiring at age 65 and will live to between 86 and 88.)

What’s not included? The cost of a nursing home or any long-term care that might be needed. A substantial 70 percent of people older than 65 will need long-term care at some point in their lives, according to LongTermCare.gov, the U.S. Department of Health & Human Services website.

Some national average costs for long-term care in the United States (in 2016), according to the Genworth Cost of Care Survey:

• $6,844 per month for a semi-private room in a nursing home
• $7,698 per month for a private room in a nursing home
• $3,628 per month for care in an assisted living facility

Want to know the median cost for your state? Find out here.

ACTION: Look for ways to alleviate the potential cost and tax burdens ahead of schedule. Evaluate long-term care insurance, healthy life insurance coverage with living benefits, and other cost-relief programs that address the financial time-bomb of lifelong care.

Never be in a position to have to spend down assets quickly—and all the negatives that entails, including a potentially massive tax burden. That is important especially for households that may be in the later situation of needing to file for Medicaid to pay for care.

For alternatives, some permanent life insurance policies, like universal life insurance, specifically come with benefits for terminal illness or disability. These can help with managing costly expenses tied to these needs in later years. Consult with a knowledgeable financial professional for more information. 

MISTAKE #2: Not addressing asset protection, liability protection, and other insurance coverage needs.

You have car insurance. You have homeowners’ insurance. You have all the insurance you need, right? Not if you’re a high-net-worth household. As Money Magazine warned: “Where there’s money, there are lawyers and dishonest plaintiffs willing to take it.”

Less than 20 percent of people with a $1 million net-worth worry about being sued. In contrast, 80 percent of those with more than $20 million net-worth had this fear, according to a survey by Prince & Associates referenced in U.S. News & World Report.

Umbrella insurance — sometimes called excess liability insurance — is considered a fail-safe to protect your savings and other assets. Should you be sued for damages that exceed the liability limits of the car, home or other coverage you have, your umbrella policy helps pay what you may owe. It could even provide coverage your other policies don’t.

Are you at risk? Yes, if you:

• Are a property owner
• Are a business owner
• Have significant savings or assets
• Own lawsuit-attracting items such as trampolines, a swimming pool or even certain dog breeds
• Serve on a non-profit board
• Volunteer
• Are a landlord
• Coach kids’ sports
• Participate in sports where you could injure others (skiing, hunting, etc.)

ACTION: Look at ways to protect your business and/or entire estate from liability or other wealth-draining events. What sorts of legal protections do you have in place? Consider a personal liability review to evaluate your picture, then discuss potential solutions with a financial professional.

MISTAKE #3: Thinking adjusting to the freedom (and free time) of retirement will be easy.

Not being prepared for the excess “free time” in retirement compared to the day-to-day, unending demands of a thriving business or executive-level career can lead to problems.

Retiring from a high-activity, demanding business schedule means a slowdown in lifestyle – at least to some extent. Many people who are used to operating at such a high level may experience a loss of identity or “purpose” in retirement.

That seems like more of a psychological concern than a financial one. But it can lead to excessive spending to the point of throwing off-kilter budget projections and predicted income streams.

ACTION: Create a lifestyle plan for when you retire. What do you expect to do? If you travel the world and fall in love with that old villa in Tuscany (admit it…you’re still inspired by “Under the Tuscan Sun”), that would definitely impact your available resources. Explore your goals now, so you can create a plan to achieve them.

Your income plan should account for inflation, so that you plan for more than sufficient income to maintain your lifestyle each year in retirement. It’s also important to distinguish between sources of income you may have. There are guaranteed sources of income, like a defined-benefit pension, and “maybe” income sources, which can generate different income amounts as they fluctuate in value. 

For that matter, it’s also good to distinguish between the “must-haves” of monthly lifestyle expenses; “good-to-haves” that are part of your lifestyle expenses, but usually don’t come up on a monthly basis; and “nice-to-haves,” which often are long-term goals, like certain vacation getaways or other luxuries.

A retirement income-knowledgeable financial professional can help you map out these spending projections over a long-term outlook, and create an income strategy to drive your lifestyle expectations.

Ready for Personal Guidance?

While nothing is foolproof, many of these potential mishaps can be managed with diligent planning and care. A financial professional who understands retirement, not to mention the potential high-ticket costs and other economic shocks entailing it, can help put you in the driver’s seat for more retirement confidence.

If you are ready for personal guidance with your situation, financial professionals can help you begin with a no-obligation goal-discovery appointment. Use our “Find a Financial Professional” section to connect with someone directly. Should you need a personal referral or have questions, call us at 877.476.9723.

Frequently Asked Questions About retirement mistakes high net worth investors

What are common retirement mistakes high net worth investors make?

High net worth investors often underestimate the impact of taxes on their retirement income, leading to unexpected liabilities. Additionally, they may neglect to diversify their portfolios adequately, relying too heavily on stocks and safe money alternatives. Failing to plan for healthcare costs and not having a clear withdrawal strategy can also jeopardize their financial security.

How can high net worth individuals protect their retirement savings?

To protect their retirement savings, high net worth individuals should consider using safe money alternatives like fixed annuities, which can provide guaranteed income and reduce market risk. It's also essential to create a comprehensive financial plan that includes tax strategies and estate planning to ensure their wealth is preserved for future generations.

What should high net worth investors consider when planning for retirement?

High net worth investors should focus on creating a balanced portfolio that includes both growth-oriented assets and safe money alternatives to mitigate risk. They should also evaluate their spending habits and lifestyle expectations in retirement to ensure their savings will last. Consulting with a financial advisor who specializes in retirement planning can help tailor a strategy that aligns with their unique goals.

How do taxes affect retirement planning for high net worth individuals?

Taxes can significantly impact retirement planning for high net worth individuals, as they may face higher tax rates on withdrawals from traditional retirement accounts. It's crucial to strategize withdrawals and consider tax-efficient investment vehicles, such as safe money alternatives, to minimize tax liabilities. A well-structured plan can help preserve wealth and maximize income during retirement.

Take the next step, run the numbers with our free retirement calculators.