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Editor’s Note: This article originally appeared in NewRetirement.
If you think that $1 million in the bank will get you on the easy road when it comes to retirement, think again.
According to a Natixis Investment Managers study, more than 35% of billionaires say they need a miracle to safely retire.
In fact, billionaires, much like investors overall, believe retirement is out of reach. We often hear from NewRetirement users. “I have a million dollars, but I’m afraid the money won’t last.” is a common refrain.
And while it may seem far-fetched and make you want to roll your eyes, this is a very real problem.
It turns out that the financial hardships of billionaires are very similar to those experienced by more average savers. Only the scale is different.
It’s not that millionaires can’t retire, it’s that they can’t maintain their quality of life
Many of the approximately 7 million millionaires in North America earn and spend more than the average household. And their savings (as a percentage of their income and expenses) are about the same as everyone else’s.
That means they, like most people, are not saving enough to sustain a quality of life for 20 to 30 years after retirement.
Most people can retire at a reasonable age.
problem?Billionaires save their income at about the same rate as less wealthy households
(And that’s not enough.)
The study reported that the median retirement savings for HNWIs is $625,000. That’s only 2.5 times his $250,000 median retirement savings across the survey population.
Similarly, the average retirement savings rate of 19.4% is impressive, but remains just under 3 percentage points higher than the overall average of 16.6%.
As a result, while the numbers look good, the difference doesn’t appear to be large enough to make a substantial difference in sentiment about retirement prospects.
Millionaires and non-millionaires alike need to save a sufficient percentage for future withdrawals.
Plus, especially in this economy, a million people aren’t what they used to be
The problem is not only that billionaires spend more than the average saver, but also that having a lot of money means that big financial problems can have a bigger impact.
A million dollars today is literally not what it used to be. Inflation has had a big impact on what money can buy these days.
And if you have a lot of money invested, your losses in the stock market will be a matter of five or six figures.
So what should you do if you’re a millionaire (or anyone) and are facing retirement worries?
Believe it or not, billionaires are a lot like everyone else. And the solution to the retirement savings problem isn’t all that different.
work a little longer
Billionaires plan to retire at a relatively early age of 63, but a majority (58%) believe they will have to work longer.
A retirement date is a powerful tool for achieving a secure retirement. But your time is a big trade-off for the extra money you make by working longer.
Use the NewRetirement Planner to assess your retirement date and find ways to retire early.
Create a budget and consider ways to reduce your retirement spending
Reducing your future spending can dramatically improve your financial security in retirement. And you don’t have to constantly sacrifice what’s important to you.
Creating a detailed retirement budget will give you a better idea of where you want to save. Creating a detailed spending forecast helps you prioritize.
You may not be able to afford everything, but you can spend your money on the things that really matter.
Strongly consider home equity as a retirement asset
For many people, including millionaires, a home is their most valuable asset.
Depending on your real estate planning aspirations, prudent use of your home equity to secure your retirement funds can be a good strategy.
You can scale down domestically or internationally, secure a reverse mortgage, consider cohabitation situations, consider a home equity loan, bridge to Social Security or weather a downturn in the stock market.
These strategies improve cash flow, can be used for retirement savings, and have other benefits.
Remember, however, that holding your home equity is a good backup plan in case you have a serious unexpected financial need, medical event, or need for long-term care in the future.
Turn savings into lifetime income
If you’re worried about running out of money in retirement, why not consider ways to turn your savings into lifetime income?
There is no one-size-fits-all approach to retirement income, but you can combine different retirement income strategies here.
Work with an advisor (but don’t give all your money to your advisor)
You worked hard to save me. A million dollars is still a big accomplishment, and if used effectively, can lead to a rewarding retirement.
Getting help with investment and planning guidance (especially regarding retirement income, insurance options, and taxes) is a great idea.
But be careful about paying someone to manage your assets. Especially if you’re billing based on assets under management (AUM). If they manage his $1 million at his AUM fee of 1.5%, that’s $15,000 a year that you can use.
We recommend that you consider working with a fee-only advisor instead. Compensation-only advisors charge a fixed fee in exchange for advice.
Fee-only advice costs are typically a fraction of AUM and there is generally no conflict between the advisor’s best interests and yours, as is the case with AUM.
do you have enough
It may fail in the future, and there are many things to fail. So no matter how much money you save, retirement planning can seem futile and frustrating.
It is important to anticipate potential financial risks such as inflation, stock market downturns, longevity and long-term care. However, don’t let these stressors prevent you from achieving your goals, plan efficient ways to deal with them.
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