When you’re earning a six-, seven- or even eight-figure salary, it’s easy to become overconfident and complacent. But remember, when you make a lot of money, you can lose a lot of money. You can leave a lot of extra money on the table. And you can give a lot of money to Uncle Sam. Unfortunately, we see it happen all the time.
Think about it: If you’re bringing in a comfortable salary, you’ll likely owe more in taxes. You have more to lose to legal problems or divorce. And chances are, you live a more expensive lifestyle than someone who makes much less.
Contrary to popular belief, financial and retirement planning can be even more important to those with a high net worth.
As one of the retirement investment advisors at Global View, it’s alarming how many misconceptions there are about financial planning. As we enter a new year, I want to address a few of the common myths that come with a high net worth retirement.
Budgeting and Emergency Funds are Only for Those Living Paycheck-to-Paycheck
Probably the most common misconception that comes with having a high net worth is that you’ll have enough money for anything that comes your way, but just look at the many celebrities who have lost everything. Some simply overspent. Some lost fortunes to the IRS. Some lost everything to unexpected legal issues and divorce. Perhaps the worst, some lost their wealth to bad financial advice.
Money doesn’t last forever, so it’s important to have a plan. Your career may be short-lived. What if you fall ill? What if life takes you in another direction? What if your company (or successful business) has a bad year – or two? If 2020 has taught us anything, it’s that life doesn’t always go as planned.
There are many threats to a successful retirement. While high net worth individuals and business owners pose the biggest target and likely have the most to lose, anyone who has unprotected assets can forfeit them to an unexpected event. No one plans to end up in the courtroom, for instance, but it happens. And lawsuits can be expensive and unpredictable. Divorce, business disagreements and even arguments over your estate can cause your hard-earned assets to be hauled into court. Even after you’re gone, your assets can face court fees and outside costs. Remember what happened to celebrities like James Brown, Howard Hughes and Phillip Seymour Hoffman? While these are high-profile cases, we’ve seen many family arguments become estate planning horror stories.
Budgeting is an important step to anyone’s financial plan. Once you break down your salary over the course of your life, you may find that it’s not as much money as you think, especially if you ever plan to retire and stop receiving steady paychecks at some point in your life.
Another important consideration is retirement. As our life expectancy grows, so does the length of many people’s retirement. Will your impressive salary cover you for 20 years in retirement? Will it cover you for 30 years?
Stay-at-home orders in 2020 caused retirement to come earlier for a lot of people. Even without the pandemic, careers don’t always last forever, and retirement can come earlier than expected.
Make your financial and retirement planning a priority in the new year. It’s too important to put off.
I Can Do It On My Own
Overconfidence can be a financial killer. If you don’t have the right experience to manage your money, a lot can go wrong. You may be more at risk if:
- You are wealthy.
- You are a professional subject to liability or malpractice.
- You are subject to extensive governmental compliance requirements.
- You own a business and have employees.
- You own liability-generating assets, such as rental real estate.
- Your portfolio is not properly diversified.
- All your eggs are in one basket.
Have you considered the what ifs life might have in store?
There is no foolproof way to make yourself less of a target, but these steps may help:
- Don’t assume your assets are protected by a revocable living trust. It may be useful for estate planning but won’t hold off creditors or prevent lawsuits. Talk to your financial advisor and estate-planning attorney.
- Create an estate plan to avoid probate proceedings and plan for taxes. Don’t rely solely on a will, because it can be contested in court. Estate planning laws can be confusing, and they change often. Discussing your financial plan with a financial team that works together can be a seemingly small step that offers big rewards. For more on what this looks like, click here.
- Work with a fiduciary financial advisor who will put your best interests first. Americans lose billions of dollars every year to conflicts of interests.
Other ways to protect your assets include umbrella liability policies, increasing your contributions to retirement plans, paying down your mortgage and stripping the equity from assets in order to transfer the money to protected assets. If you’re a business owner, you have additional options. Make sure your financial team understands your unique needs.
If you’re not sure if your assets are properly protected, contact the retirement investment advisors at Global View to see how we can help. No one wants to end up one of the financial planning or estate planning horror stories we’ve all heard about.