5 High Net Worth Retirement Planning Mistakes to Avoid

Today, there is a high number of retirement planning advice readily available online and in other media. But most of it isn’t geared towards high net worth individuals. Proper retirement planning is very crucial since it only takes one or two mistakes to go from financial independence to broken dreams.

Many studies have shown that about half of all retirees will have no choice but to alter their lifestyle significantly due to unforeseen financial issues. While it’s a disturbing fact, the good news is that with a better retirement plan, you can prevent this headache. One of the best ways to achieve success is to avoid big mistakes. Here is a list of five mistakes to avoid for high net worth individuals:

1. Negligent Investment Management

Rich individuals have the money, but they commonly lack control over where that money gets invested and this can be costly in the long run. Having a well-diversified portfolio will ensure you get the best possible return with less risk to overcome the changes of both up and down markets.

Are you aware of the expected return on your invested assets? What is the risk level of that investment? If you don’t know the answer to these questions, it might be a good idea to hire a financial planner. They can better manage your assets based on your objectives and goals, providing a higher chance for you to reach to long-term goals.

2. Neglecting Tax Diversification

Tax later, tax now or tax never? Which choice is best in helping you reach your retirement goals? Many retirees are pleasantly surprised when they hit 70, begin taking their withdrawals and discover their tax bills all of the sudden grow a lot higher. The reason for that is the money they withdraw from their retirement accounts for living expenses is considered federal taxable income.

And it’s common for them to be taxed at their highest tax bracket. 401(k)s and IRAs can help in saving on taxed during the contribution phase, but in return, you pay a big price during your retirement years when you begin to withdraw. A better, tax-efficient solution is to invest in vehicles like Roth IRAs. Roth 401(k)s and Insurance products which enable you to enjoy a valuable stream of tax-free income when you retire.

3. Clinging to Traditional Strategies

There are more options than just IRAs, 401(k)s, and Roths when planning your retirement. It’s highly recommended for wealthy investors to include alternative investment products into their high net worth retirement planning to gain an advantage of extra benefits, such as:

Stop Loss Guarantees. For example, through indexed products, your portfolio will participate in up markets, but won’t go below zero. With a floor of 0% and a ceiling of 12%, your assets can provide a better overall return than if you completely overexpose yourself without these limits.

Tax-Free Withdrawals. Alternative investments could offer tax-free withdrawals and tax-free growth. You can earn many hundreds of thousands of dollars more when paying for tax upfront and then have life-long tax-free withdrawals.

Flexibility for Your Money. Alternative investments provide wealthy individuals increased flexibility in terms of how much you’re able to take out and when. Certain products have no IRS penalty to gain access to funds before the age of 59. You can use these funds for a college education without the IRS requirement to withdraw these funds at the age of 70.

4. Underestimating Longevity

According to the latest statistics, people are now living longer, but most still don’t prepare for it financially. For example, if you plan to live to 85, but end up living to 95, your savings will come up short. It’s much better to plan for 95, if you only live till 85, you will spend that time living more comfortably and have something left to pass on.

5. No Second Opinion

If you feel that your financial planner isn’t adding the necessary value to your financial investments, or if it’s been over twelve months since you had a financial review, you should consider a Portfolio Second Opinion. Even if you don’t want to switch advisors, getting a Second Portfolio Opinion lets you see if there are better opportunities to position your savings and investments. Having more information and a better understanding of your goals will help you determine if your current financial plan is on target.