High Net-Worth Individuals: Are You Missing Opportunities in Your Financial Planning?

High net-worth executives and those that have been self-employed can experience common problems in their financial planning journey. Often, they have missed opportunities in their financial planning because they haven’t planned adequately for their retirement even though they make a high income.

It’s easy to think that everything will work out with their retirement plan, and it can, but a high income often masks the reality of having a deficit once a career ends. Just like average income earners, failing to save in the early working years can lead to a retirement savings shortfall.

Retirement today means independence for many Americans. Flexible retirements are desirable when retirees can work, volunteer, golf, or do anything they choose because they have saved enough to decide when to retire and on their own terms.

Many high-income, self-employed executives often focus on the business being their retirement nest egg to get them financially through the rest of their lives. The sale of their business funding their entire retirement is an unknown until the liquidation event actually happens. Financial planning for the ‘what-ifs’ can put the executive in a better position if they take the opportunity to save through these retirement savings options:

• Creating your own Deferred Comp Plan (DCP) allows you to defer a much larger portion of your compensation to supplement your retirement later on. A strategically planned DCP creates beneficial options when it comes to choosing between the employer’s corporate lower tax bracket and the employee’s higher personal tax bracket.
• Maximizing your own Solo 401(k) or SEP IRA each year allows you to save more than a traditional 401(k), with some additional requirements. For the self-employed, these retirement plan options are an obvious way to save and shouldn’t be disregarded regardless of the financial status of the business.

Putting all additional revenue into the business and not into a retirement savings plan leaves many self-employed executives short if the business liquidation event comes at the wrong time. It’s rare that a business sale comes during a high valuation or a prime time and often comes during an unfortunate event unforeseen by the executive.

Overspending during the good times keeps the executive believing they can ‘always make it up later’ when it comes to financial planning and their retirement savings. The ‘good years’ are often ones when excess capital is put into business expansion or personal over-spending, versus retirement savings.

A high income enables you to save more, but only if you consistently engage in financial planning for your retirement. Don’t miss an opportunity and put off saving for retirement when you could be saving today.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

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