When it comes to retirement savings, the goal is quite simple for most. To accumulate as much wealth as possible so that they are able to retire in comfort and style, while they enjoy the fruits of years of labor. For those with a high-net worth, being able to maintain their lifestyle into retirement might require a little more skill when it comes to saving. To help maintain a high-net retirement savings, below are a few mistakes that one may wish to avoid.
Failing to Diversify Taxes
For most people, the idea of paying a lot of their hard-earned money in taxes during their retirement is far from appealing. Unfortunately, once most retirees hit the age of 73, they may notice a significant hike in their tax bill, due to required withdrawals from certain retirement accounts. Once withdrawn from the account, the money is considered taxable income for the year, and it will result in the retiree being taxed at their highest tax bracket. Even though certain accounts, such as 401(k)s and IRAs allow contributions tax-free, when it comes time to remove the money, the IRS will come to collect. One approach to limiting taxes is spreading out some of the investments across Roth IRAs, Roth 401(k)s, and insurance products, which may provide retirees with a steady income that is non-taxable.
Holding Fast to Traditional Strategies
Most investors know the typical strategies used to help amass wealth, such as Roths, IRAs, and 401(k)s. Yet, for investors who have high-net worth, it may be advisable to include other products and strategies into the mix, which might provide you with a better chance of growing money faster than more traditional routes. By opting for differing strategies, you may enjoy greater benefits such as tax-free withdrawals. Some strategies will allow you to pay the taxes on your retirement money upfront and then benefit from tax-free money when it comes time to withdraw.
Another benefit of trying multiple investment strategies is that it may result in more flexibility with the money. Some options will have a lot more flexibility in their terms, allowing retirees to withdraw earlier with little to no penalties.
Not Taking Longevity Into Account
Even though trends are showing that people are living longer through the benefits of medical advancements, many people are not financially planning for an extended life. Most people will estimate the age they will live to and plan their retirement financing to that age, but ultimately if that age is exceeded, they might possibly come up short. Try planning for a decade longer than expected. For those who believe they will live to the age of 80, having enough funds to make it to 90 should be the goal. This way, if a person only lives until 80, they will still be able to live comfortably and might even be able to pass something on to their loved ones.
Important Disclosures:
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 determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
LPL Tracking #1-05362944
Sources
https://ilafp.com/financial/5-high-net-worth-retirement-planning-mistakes-and-avoid/
New RMD Rules for 2023 | 401ks | U.S. News (usnews.com)