The Middle Wealthy Are the Goldilocks of Retirement, But Where Do You Find the Financial Advice That's 'Just Right'?
Too rich for basic financial advice but not rich enough for private client services? What's the best way to plug the "middle wealthy" retirement planning gap?
As retirement inches closer — when it's, say, five to 10 years away — it's likely you'll have mixed feelings of nervousness and excitement. You've saved diligently, your 401(k) has grown and you may even be ahead of schedule. But you may still be wondering, "What's next?"
The truth is, the closer you get to retirement, the more complicated the answers can become. At this stage, retirement planning is no longer just about investment performance and building up your savings.
Rather, it shifts to a stage of preservation and protection, focusing on strategies such as income planning, tax mitigation, health care and estate planning.
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The problem is that most Americans in this stage of life fall into what I like to call the underserved majority — households with between roughly $500,000 and $5 million in assets. This group represents a huge portion of the population, yet they often fall through the cracks of the financial industry.
The underserved majority
In the world of wealth management, the extremes tend to get the most attention. New investors are courted by digital platforms (websites and mobile apps) and entry-level brokers.
Both are designed to make buying and selling financial assets a low-cost, user-friendly service that emphasizes speed and convenience over personalized human advice. The ultra-wealthy, those with $10 million or more, are served by private client divisions that coordinate every aspect of their financial lives, from tax attorneys to estate planners.
But in the middle sits the largest and most underserved group: Those who have done well, saved consistently, built meaningful wealth, but don't qualify for the white-glove services offered to ultra-high-net-worth families.
These are the kinds of people we serve at Blue Ridge Wealth Planners. Instead of trying to piece together advice from a number of different sources, our clients can come to us for everything (investments, income planning, tax planning and health care) to ensure all the financial planning pieces fit together.
The truth about retirement income planning
One of the biggest myths about retirement revolves around how much income you will need. Many retirees assume they'll have to replace all of their pre-retirement income to maintain their lifestyle. Fortunately, that's rarely the case.
Once you stop working, several major expenses go away. You're no longer contributing to a 401(k), which means you won't have to pay FICA, the U.S. federal payroll tax deducted from each paycheck that helps fund Social Security and Medicare.
Depending on where you live, retirement can also result in lower federal and state taxes owing to tax breaks and your reduced income. For example, if you live in a state like Tennessee, you won't pay any state income taxes.
So, if you're used to earning $150,000 a year, you may not need anywhere near that amount in retirement to maintain your standard of living.
Understanding the difference between gross income, the total amount earned before taxes and deductions, and net income, the remaining amount left over after subtracting taxes, benefits and deductions, can dramatically change how much you will need to withdraw from your retirement accounts each year.
Taxes, the ticking time bomb
Taxes are one of the largest and most underestimated expenses for retirees, just behind health care.
Knowing how to navigate the tax conversation can determine how long your money lasts. Unfortunately, most people don't get the education and guidance needed to make informed decisions about their money until it's too late.
This is where coordinated planning becomes invaluable. Retirees can reduce the impact of taxes on their nest egg by:
- Making Roth conversions during lower-income years before required minimum distributions (RMDs) kick in
- Coordinating withdrawals from a mix of taxable, tax-deferred and tax-free accounts to control your taxable income
- Taking advantage of charitable giving strategies that align with your goals and values
These strategies aren't just reserved for the ultra-wealthy. They are critical tools for anyone with some level of retirement savings.
Think beyond investments
Health care and insurance
Retirement readiness isn't just about how much you have saved up. As I mentioned earlier, there are some unknowns that you can plan for (taxes), and some you might not be able to (health). Even if you're relatively healthy now, you can't assume you always will be.
One of the hardest things to plan for in early retirement is medical coverage. If you decide to retire before age 65, you will need a plan for the gap in coverage before you become eligible for Medicare.
After that, you may need supplemental coverage and some form of long-term care planning. Health care costs are unpredictable, and failing to plan for them can disrupt even the most carefully built retirement plan.
Estate planning
Another key piece of the retirement planning puzzle that people often overlook is what to do with their estate. Some people assume they've checked the box when they draft a will.
However, a will is just one document in a larger plan, which, depending on how many assets you have and who you would like to pass them to, takes much more planning and documentation.
For many people, those initial estate planning documents haven't been updated in decades and no longer reflect their wishes and desires. What's more, some of the beneficiaries who may have been children at the time are now adults who could serve as executors, trustees or health care powers of attorney.
At the very least, beneficiaries should be reviewed and updated. Not only does estate planning protect your family financially by ensuring the proper transfer of assets, but it also provides emotional peace of mind knowing your wishes are taken care of.
Addressing the holistic planning gap
When ultra-high-net-worth investors work with a major firm, they coordinate with their CPA, estate attorney and investment team. Most retirees who are considered middle wealthy don't get that same level of attention and service.
The result is a planning gap, where instead, each piece of the retirement planning puzzle is handled separately, without communication between those financial professionals.
Some independent advisory firms seek to address this coordination gap by offering tax, estate and other planning services in-house or through unaffiliated professionals. At Blue Ridge Wealth Planners, we coordinate, at the client's direction, with their existing professional advisers, such as their CPA and estate planning attorney, to help align financial planning, investment strategy and retirement income goals.
We aim to provide a more connected planning experience for retirees by bringing the right parties together and helping ensure key planning decisions are considered in context.
This level of coordination can make a huge difference. For example, integrating tax and investment strategies may reveal opportunities for Roth conversions or charitable distributions that an adviser focused only on investments might overlook.
Finding the right fit
Regardless of how much you have in savings or how many assets you currently hold, you still have significant decisions to make that could affect your future.
If you're approaching retirement, one of the best things you can do is evaluate whether your adviser is providing holistic guidance or just managing investments. You may pay a slightly higher advisory fee at a different firm, but it may be worth it if it comes with a team that helps you make smarter, more coordinated decisions that take into account every aspect of your life and ultimately lead to sustained long-term success.
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