Mastering Retirement Planning: Strategies for High-Net-Worth Individuals

High-net-worth individuals don’t get to where they are by happenstance — it’s the outcome of a journey marked by choices, and at times, the lessons learned from mistakes.

Although 84% of wealthy Americans have financial plans designed to mitigate long-term risks, there’s more potential for mistakes in the second half of life compared to the first. When it comes to retirement planning, I like to use this analogy: Every year, thousands of people climb Mount Everest and studies show that the death rate is highest during the descent. This is similar to retirement planning where the likelihood of financial mistakes is highest leading up to and during your retirement years.

A recent study on retirement conducted by Northwestern Mutual, surveying 500 affluent pre-retirees and retirees, found that respondents underestimated their life span by an average of nearly two decades, with 81 years old the average self-reported life expectancy. Experts say 100 years old is what you should actually plan for, suggesting that many pre-retirees and retirees are ill-prepared when it comes to long-term retirement planning.

To help ensure you’re prepared for your golden years, consider these planning opportunities.

READ: Mapping Out Financial Success with Retirement Planning

Look at the big picture

As life expectancy continues to grow, longevity risk, or the risk of outliving your income, has increased.

The financial changes that may occur over such a long life include recessions, periods of high inflation, higher taxes, rising healthcare costs and more. And while there’s no single solution to the multitude of longevity risks, a comprehensive financial plan should include strategies to help mitigate financial-related longevity risk factors.

Save strategically

By getting specific about how you’d like to and when you will need to use assets in retirement, you should identify the right blend of financial instruments to ensure your hard-earned dollars go as far as possible. As you’re putting your money to work, keep these ideas top of mind:

Tax considerations

It’s important to pay particular attention to taxes by looking through the lens of income taxes, capital gain taxes and estate taxes. Additionally, by selecting the right mix of taxable and tax-advantaged financial instruments, you can minimize the impact of taxes, helping your dollars work as hard as possible for you both today and in retirement.

Asset allocation

Selecting the right asset allocation for your risk tolerance, investment time horizon and each life stage helps ensure your assets are appropriately positioned for growth, preservation or somewhere in between.

READ: 4 Key Asset Allocation Strategies for 2023

Income protection

By protecting your income during your earning years through a mix of disability insurance products, you can keep your retirement saving strategy on track in the event an unexpected change in your health or physical condition prevents you from working.

Guaranteed retirement income

Setting up sources of guaranteed income can help cover your essential living expenses in retirement. What’s more, guaranteed income sources like qualified and nonqualified income annuities help mitigate the risk of outliving your assets.

A plan for long-term care

The fact that most Americans turning 65 will need long-term care at some point, along with the rising cost of care, means you’ll want a multi-pronged plan in place to help pay for these services.

Legacy

Having a legacy plan in place ensures that your family’s wishes and assets are carried out in the event of illness or death.

Decide what you want to do in retirement

Whatever you decide to do with your time when you retire, it’s important to start planning in advance. Identify how you want to spend your time and who else has a role in those plans, including a financial advisor who can help achieve those goals. From there, develop a purpose plan to connect all aspects of your finances with what you want out of life once you reach retirement.

When people feel more secure in their financial situation, it frees up time and energy to focus on other parts of life that bring happiness and fulfillment. Northwestern Mutual’s study on retirement found that 66% of recent retirees who work with a financial advisor feel optimistic about their hobbies, passions and interests compared to 53% of recent retirees who don’t work with a financial advisor.

Trust in financial advisors

Those who use an experienced financial advisor are more likely to take the strategic actions needed to achieve their long-term financial goals. Of the affluent individuals surveyed, 70% work with a financial advisor compared to just 37% of the general population. What’s more, over half of wealthy people consider financial advisors to be their most trusted source of financial advice—more than four times any other source.

Retirement planning for high-net-worth individuals can be a complicated undertaking. Revisiting your retirement plan often and following the steps outlined above can help you gain the financial freedom to live the lifestyle you want in your golden years.

Scott Sparks is the CEO and founder of Northwestern Mutual’s Sparks Financial. All investments carry some level of risk, including loss of principal invested. This publication is not intended as legal or tax advice. Financial Representatives do not render tax advice. Consult with a tax professional for tax advice that is specific to your situation.