Retirement is about so much more than money. If wealth were enough, affluent people would have no issues transitioning into their retirement years. But talk to high-net-worth people, and they’ll tell you a different story.
We at Northwestern Mutual did just that in a research study of wealthy Americans. We found they share a pair of blind spots when it comes to retirement planning. Recognizing and getting ahead of these blind spots early could mean the difference between exhilaration and anxiety in retirement.
More important, the retirement challenges that wealthy people face aren’t unique to them. Here’s the key point: Money alone won’t spare you from retirement blind spots.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Blind spot #1: Longevity and legacy
People tend to underestimate their life expectancy, and often it’s by more than just a couple of years. The average high-net-worth person in our study said they expect to live to the age of 81. Given their affluence and ability to afford preventive care, a financial adviser might suggest their plan for retirement should be designed to last until age 100.
Advances in health care and lifestyle improvements have increased life expectancies worldwide. While it’s true that not everyone will make it to triple digits, there is a reasonable chance many people will, and a good financial plan has to factor in that possibility.
Underestimating longevity can have severe financial consequences, leaving people — including the wealthy — vulnerable to sacrificing other, meaningful financial goals.
Our research found that as wealthy people age, their confidence in their life savings grows. But at every stage of the retirement journey, they are underestimating their lifespan by up to an average of two decades! Moreover, they are misjudging their exposure to other retirement risks that could occur over that 20-year period: rising inflation and taxes, a long-term care event, rising health care costs, market volatility and more.
Interestingly, this undervaluing of retirement years is constant as years go by. People's life expectancy expectations before retirement, at retirement and in retirement are almost identical.
When told about the 20-year gap between their expectations and a possible reality, wealthy Americans are not particularly worried that they will outlive their life savings. But they are concerned that these extra costs could diminish the wealth they can leave behind as a legacy — to family and beloved philanthropic causes.
To avoid this blind spot, people need to plan for a retirement that may last 30 years or more. To put that into context, it could be close to or just as long as their working lives.
Many people, especially wealthier clients, are driven and professionally successful, so it can help to consider retirement like something of a second career. It needs work and focus to get it right. It can take unexpected twists and turns. It requires a financial plan that addresses near-term and long-term needs, and it helps to be able to see around corners. That’s why it’s important to build a comprehensive plan that protects what you’ve already built while also creating future prosperity.
Research proves that a plan that elegantly combines investments with permanent life insurance and annuities deliver superior financial results more often than an investments-only approach.
Blind spot #2: The purpose plunge
Blind spot number two is all about expectations and reality. On average, as wealthy people near retirement, their sense of personal purpose and feelings about hobbies, interests and passions peak. But, surprisingly, once they transition into retirement, it plummets by about 10%.
Our research found that wealthy Americans’ feelings were influenced by two key factors: loss of social status and a “tyranny of choices.” Many define their identity and purpose through their work — and those structures and social connections can be hard to replace. In fact, several wealthy Americans told us that retirement can feel like “dropping out of society” — and as a result, they seek opportunities to serve as a consultant or a mentor and find value in maintaining a small practice for select clients, on their terms.
Moreover, these wealthy retirees have so many opportunities, it can feel difficult to choose. Indecision often leads to stagnation and apathy.
One way to avoid or at least mitigate the impact of the purpose plunge is to recognize the possibility that it could happen. If people aren’t expecting the early years of retirement to be a challenge, they’re more vulnerable to feeling unfulfilled. If you know that retirement may be hard at first, you can plan ahead.
Our advisers are constantly having conversations with their clients about all the ways to prepare for retirement — beyond the financial. They encourage our high-net-worth clients to think about activities and hobbies that may have taken a back seat during their working years. Identify possible new interests, mentorship opportunities, philanthropic endeavors, courses, workshops and clubs. Ideally, it’s a combination of different activities that will feed their interests and curiosity, keep them engaged, motivated and inspired. This is true for anyone, regardless of their financial status.
This type of planning is best done intentionally rather than informally, and professional financial advice can help. In fact, our research found that wealthy people who work with an adviser are significantly less vulnerable to the purpose plunge than those who go it alone.
Bottom line: The retirement years for high-net-worth people can and should be a long, exciting and highly fulfilling period of life. But as with most things, it doesn’t happen automatically, it’s not something that can be bought, and it needs thoughtful planning.
Related Content
- How Does Your Magic Number for Retirement Compare to Others’?
- Why Are You Still Working?
- Five Common Retirement Mistakes and How to Avoid Them
- Four Tips to Help You Conquer the Retirement Mountain
- Three Ways to Lower Your Taxes in Retirement
-
Original Medicare vs Medicare Advantage Quiz: Which is Right for You?Quiz Take this quick quiz to discover your "Medicare Personality Type" and learn whether you are a Traditionalist, or a Bundler.
-
Ask the Editor: Capital Gains and Tax PlanningAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on capital gains tax rates and end-of-year tax planning
-
Time Is Running Out to Make the Best Tax Moves for 2025Don't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
Time Is Running Out to Make the Best Moves to Save on Your 2025 Taxes
Don't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
4 Smart Ways Retirees Can Give More to Charity, From a Financial AdviserFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
-
I'm an Insurance Pro: If You Do One Boring Task Before the End of the Year, Make It This One (It Could Save You Thousands)Who wants to check insurance policies when there's fun to be had? Still, making sure everything is up to date (coverage and deductibles) can save you a ton.
-
3 Year-End Tax Strategies for Retirees With $2 Million to $10 MillionTo avoid the OBBB messing up your whole tax strategy, get your Roth conversions and charitable bunching done by year's end.
-
'Politics' Is a Dirty Word for Some Financial Advisers: 3 Reasons This Financial Planner Vehemently DisagreesYour financial plan should be aligned with your values and your politics. If your adviser refuses to talk about them, it's time to go elsewhere.
-
For a Move Abroad, Choosing a Fiduciary Financial Planner Who Sees Both Sides of the Border Is CriticalWorking with a cross-border financial planner is essential to integrate tax, estate and visa considerations and avoid costly, unexpected liabilities.
-
I'm a Financial Adviser: This Tax Trap Costs High Earners Thousands Each YearMutual funds in taxable accounts can quietly erode your returns. More efficient tools, such as ETFs and direct indexing, can help improve after-tax returns.
-
A Financial Adviser's Guide to Divorce Finalization: Tying Up the Loose EndsAfter signing the divorce agreement, you'll need to tackle the administrative work that will allow you to start over.
