6 Retirement Income Do’s And Don’ts For High-Net-Worth Individuals

Randall J. Richard
Saturday, June 8th, 2019
Posted in: Retirement Security
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When thinking about retirement savings, most people’s nightmare scenario is to spend the last years of their lives as a burden to their family. Making smart decisions about retirement income is essential to achieve your retirement lifestyle goals and grow old with the best care and support around you.

How Much Retirement Income Do You Need?

Think about your retirement income needs as the amount of money you will require to meet expenses once you retire and no longer earn income from your current job. Here’s one way to do a simple, back-of-the-napkin projection of your retirement income need.

Add up all your retirement income sources expected at the first year of retirement and multiple this yearly estimate by 25 years. The difference is a rough estimate of what you need minimally to keep your lifestyle. If over, you’re off to a great start and more further analysis can help to ensure you have more than enough income. If under, what can you put in place between now and retirement to get your income plan in place for later?

Start by calculating 75 percent of your current income. If you currently earn $200,000 per year, you would need approximately $150,000 per year if you retired today. This 25 percent reduction helps account for excess income you may earn now (such as funds you’re saving and investing for retirement) and reduced expenses during retirement (such as a current mortgage that would be paid off by that time).

Next, estimate the inflation on that income number. If you plan to retire in 10 years, and the inflation rate is three percent, your base income need of $150,000 (in today’s dollars) would be $201,587 per year when you retire. For the total amount you’d need for retirement, multiply that number by 25 years: $201,587 x 25 years = $5,039,675. That’s the total amount you’d need to fully fund your retirement.

Now that you know how much income you would need, add up all of your sources of retirement income, such as pensions, investments, rental income, inheritance, business distributions, social security, annuities, life insurance cash value and more. Subtract this income from your retirement income needs, and you have an idea of how much you still need to save to maintain your current lifestyle in retirement.

Retirement Income Do’s And Don’ts

  1. Don’t use your entire principal to pay down debt, such as a mortgage. A better option is to save that principal to meet your income needs.
  2. Don’t forget about taxes. Tax obligations continue to apply to your retirement income.
  3. Don’t make investments with too much risk for your age and income needs. In general, your investment portfolio should become more conservative as you approach your target retirement date.

These mistakes could be a serious blow to your retirement planning. You might end up spending down your principal too quickly or run out of money, and have to either go back to working or downgrade your retirement lifestyle.

  1. Do invest in income-generating assets. These assets could include residential rental property, commercial property, annuities, private lending and businesses. You could invest in a variety of income-generating assets under the structure of a business without having to start one yourself.
  2. Do have a long-term cash flow projection. This projection should account for your life expectancy and include your retirement goals and plans. Identify any gaps in that projection and start working on them now.
  3. Do account for increased inflation. Your retirement income needs should be based on estimated inflation, not today’s dollars.

Making smart choices about your retirement income increases the likelihood of your financial success and accomplishing your personal life mission.