As you approach retirement, enhancing your retirement income becomes crucial for helping secure a sustainable financial future. For affluent Americans, the challenge isn’t just about preserving wealth—it’s about growing it to support a lifestyle that extends beyond basic living expenses.
In fact, according to a 2023 UBS Global Wealth Management report, 60% of high-net-worth individuals feel that preserving wealth for future generations is a top priority, while 52% cite philanthropy and charitable giving as important retirement goals. Your financial priorities may include maintaining a luxurious lifestyle, traveling, and estate planning—all while helping ensure your wealth continues to grow.
While traditional retirement strategies can help, advanced wealth management approaches are designed to maximize your income, help protect your assets, and support your long-term financial goals. Let’s explore these strategies and how they can help boost your retirement income.
Understanding the Retirement Income Gap
Before we explore specific strategies, it’s important to understand the “retirement income gap.” This term refers to the difference between the income you need to maintain your desired lifestyle in retirement and the income you’re projected to receive from traditional sources like Social Security, pensions, or certain annuities.
While HNWIs often have significant assets, the challenge is converting these assets into reliable income while minimizing taxes, mitigating market risks, and adjusting for inflation. Simply put, your wealth needs to work for you throughout your retirement.
The following information is for educational purposes only and should not be taken as specific investment advice. Always consult with a qualified financial advisor before making any financial decisions, as individual circumstances and needs may vary.
The Importance of Tax Efficiency in Retirement
For the ultra-wealthy, tax-efficient strategies can play a key role in preserving and boosting retirement income. Considering tax implications during retirement planning can help ensure you retain more of your wealth. Here are some possible strategies:
- Utilize Roth Conversions: If you have a significant portion of your savings in traditional IRAs or 401(k)s, consider converting some of these assets into a Roth IRA. While you’ll pay taxes upfront, your future withdrawals will be tax-free. This can be particularly beneficial if you expect to be in a higher tax bracket later in retirement or foresee substantial investment growth in your retirement accounts.
- Capitalize on Qualified Charitable Distributions (QCDs): Charitable giving is often an important part of estate planning for HNWIs. If you are aged 70½ or older, you can make charitable contributions directly from your IRA using a Qualified Charitable Distribution (QCD). This strategy can help reduce your taxable income while fulfilling your philanthropic goals.
- Consider Tax-Loss Harvesting: Tax-loss harvesting involves selling investments that have declined in value to offset gains from other investments. This can help reduce taxable income and capital gains, freeing up more money for reinvestment or spending in retirement. Proper timing and diversification are critical for tax-loss harvesting to be effective. Working with a financial professional can help ensure this strategy aligns with your overall financial plan.
Leveraging Insurance Products for Steady Income
In addition to investment strategies, various insurance products can help ensure a steady income in retirement. These options offer HNWIs a more reliable and risk-managed approach to maintaining income streams.
- Consider Fixed Index Annuities (FIAs): A fixed index annuity (FIA) is an insurance product that offers growth potential tied to a stock market index while helping protect your principal. Your money isn’t directly exposed to market volatility, and you’re guaranteed a minimum return. For retirees seeking both income and growth potential without the risk of market downturns, FIAs can be a valuable addition to your portfolio. FIAs also offer the option of a lifetime income rider, which can provide guaranteed payments throughout your retirement. This aims to fill the retirement income gap, helping ensure you won’t outlive your money. It’s important to remember that all types of annuities come with some form of risk, so consulting a financial advisor can help determine if an annuity is right for your portfolio.
- Long-Term Care Insurance: While long-term care (LTC) is often overlooked, the costs associated with extended medical care can drain retirement assets quickly. For HNWIs, investing in long-term care insurance can help preserve your wealth by covering costs for nursing home care, assisted living, and in-home care. Some policies also include hybrid options that combine LTC benefits with life insurance, helping ensure that if you don’t need long-term care, your beneficiaries will still receive a benefit.
Investing in Diversified Income Streams
Diversification is a hallmark of successful wealth management, and in retirement, spreading out your risk across multiple income streams is essential.
- Dividend-Paying Stocks: Investing in dividend-paying stocks is an effective way to generate consistent income while helping your portfolio to grow. While the stock market can be volatile, dividends tend to remain stable even during economic downturns. Some high-quality companies have a track record of increasing dividends over time, helping provide a potential hedge against inflation.
- Real Estate Investments: Real estate has historically been a reliable source of income for HNWIs. Rental properties, commercial real estate, and Real Estate Investment Trusts (REITs) can help generate a steady income stream while providing tax advantages like depreciation. Depending on your risk tolerance, you can diversify your real estate holdings by investing in different property types, such as multifamily units, office spaces, or retail properties. One advantage of real estate is its potential inflation-hedging capabilities. Property values and rental income often rise with inflation, helping ensure your income keeps pace with rising costs.
- Municipal Bonds: For retirees looking to reduce risk and increase tax efficiency, municipal bonds (munis) are a popular choice. Munis are generally exempt from federal income taxes and, in some cases, state and local taxes. While they offer lower returns compared to equities, their tax-exempt status can make them an attractive option for high-net-worth retirees seeking stable, predictable income.
Navigating Market Volatility and Sequence of Returns Risk
Market volatility can pose a serious risk to retirement income, particularly for HNWIs who have accumulated substantial assets and are now looking to draw from those assets over a long retirement. One specific challenge is the “sequence of returns” risk, which occurs when retirees withdraw funds during a market downturn. Early losses can deplete your retirement portfolio faster than expected, even if the market eventually recovers.
- Implement a Dynamic Withdrawal Strategy: A dynamic withdrawal strategy involves adjusting the amount of income you take from your portfolio based on market conditions. For example, during years when the market performs well, you can withdraw a higher amount, while in years of poor performance, you scale back your withdrawals. This strategy can help protect your portfolio’s longevity, minimizing the risk of depleting your assets prematurely.
- Create a Bucket Strategy: A “bucket” strategy divides your retirement savings into categories based on when you expect to need the money. For example:
- Short-term bucket (1-3 years): Holds conservative investments like cash or short-term bonds for immediate income needs.
- Mid-term bucket (3-10 years): Includes moderate investments like dividend-paying stocks or REITs to generate income over a medium timeframe.
- Long-term bucket (10+ years): Consists of growth-oriented assets like equities that have the potential for higher returns, helping to outpace inflation.
By separating your assets into buckets, you can help avoid selling volatile investments at a loss during a market downturn while helping ensure that your short-term income needs are met.
Planning for Longevity and Legacy
Affluent Americans are often concerned with both preserving their wealth during retirement and passing it on to future generations. This requires balancing your immediate income needs with long-term growth and estate planning strategies.
At Johnson Wealth and Income Management, we’re highly experienced in helping HNWIs navigate complex financial landscapes. Our team of fiduciaries will work closely with you to develop a comprehensive retirement plan tailored to your specific goals, risk tolerance, and tax situation. We understand the unique challenges you face and offer personalized solutions designed to help maximize your income while preserving wealth for your heirs.
Final Thoughts: Crafting a Sustainable Retirement Income Plan
Boosting your retirement income requires a multifaceted approach that incorporates tax-efficient strategies, diverse income streams, and risk management. High-net-worth individuals face unique challenges, but with the right planning, it is possible to help secure a comfortable retirement while continuing to grow and protect your wealth.
Johnson Wealth and Income Management is here to help you navigate these challenges. Working with our team helps you enjoy peace of mind, knowing that your retirement income plan is more sustainable and optimized for long-term success.
Contact us today to schedule a complimentary consultation.
All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Johnson Wealth & Income Management and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. Investing involves risk. There is always the potential of losing money when you invest in securities. Asset allocation, diversification and rebalancing do not ensure a profit or help protect against loss in declining markets. All information and ideas should be discussed in detail with your individual advisor prior to implementation. The presence of this website, and the material contained within, shall in no way be construed or interpreted as a solicitation or recommendation for the purchase or sale of any security or investment strategy. In addition, the presence of this website should not be interpreted as a solicitation for Investment Advisory Services to any residents of states where otherwise legally permitted to conduct business. Fee-based financial planning and Investment Advisory Services are offered by Sound Income Strategies, LLC, an SEC Registered Investment Advisory firm. Johnson Wealth & Income Management and Sound Income Strategies LLC are not associated entities. Johnson Wealth & Income Management is a franchisee of the Retirement Income Source. The Retirement Income Source and Sound Income Strategies LLC are associated entities. © 2024 Sound Income Strategies.