Category: Retirement Planning
It’s RMD Time: It Ain’t 70 1/2 Anymore!
In 2020, President Trump signed the SECURE Act (Setting Every Community Up For Retirement Enhancement) into law as part of a far reaching “Further Consolidated Appropriations Act of 2020”. Although the SECURE Act was only signed into law about a year ago (December 2022), it’s mandates are already impacting U.S. small businesses and their employees alike.
What are RMDs (Required Minimum Distributions)?
The first word in this acronym stands out and is key: Required. Required Minimum Distributions (RMDs) are minimum amounts that IRA and retirement plan account owners generally must withdraw annually. The first RMD must be taken by April 1st of the year following your 73rd birthday. Let me explain let’s say you turn 73 years old on August 1, 2023. In this case, your initial RMD would be start by April 1st, 2024. In other words, your first RMD must be taken by April 1st of the year after you turn 73. As a side note, if you were born after 1960, then beginning in the year 2033, the SECURE 2.0 will extend the age at which RMDs must start to 75 years old. There are a lot of moving parts. But as you can see above, the schematic by Michael Kitces, explains the RMD details much better than just words alone.
There are a lot of detail to RMD planning. As an example, retirement plan account owners (like traditional IRAs) can put off taking their RMDs until the year in which they retire (unless they own 5%+ of the business underwriting the plan). Just know this, if you choose to delay taking your RMD, you’ll need to combine your RMDs (first and second) in the same year. That may create a problem by pushing you into a higher tax bracket. Talk to your trusted tax advisor to ensure you are following the guidelines and deadlines! Because, as with all things government-mandated, if you miss your RMD deadline, the penalties can be severe. Here are the IRS guidelines.
A Reduced Penalty. Wait, What?
Yes, you read correctly. In the past, it was widely known in the planning community that RMD penalties were heavy. How steep? Well, under the prior rules, if a retiree overlooked or just flat-out missed the RMD deadline, they would be hit with a painful penalty of 50% of the amount not taken on time. Today, presently, that penalty has thankfully been reduced to 25%. And lessor yet, 10%, if you correct the oversight within two years.
By the way, even if you inherit a qualified (IRA, etc.) retirement account, it is still subject to an RMD. Note: Roth IRAs escape the RMD requirement in the account (IRA, etc.) owner’s lifetime, but get this: Your heirs will have to take RMDs). Nevertheless, overall, I like the changes and updates to RMDs. It allows hardworking Americans to keep their hard-earned money in retirement accounts for a longer period of time to earn more money for their future. And given the fact that we are all living longer, this can only help. -GW
At SEA Financial Hawaii, we do not provide tax, accounting, or legal advice. Clients should consult their own independent advisors as to any tax, accounting, or legal statements made herein. This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients.
Key Points to Help you Feel more at Ease with this Nutty Volatility
Epic volatility is the norm? Check out this list from the LPL group. First point they make: This. Is. Normal. I love it. Good stuff. The message is this: Hang in there, you’ll be rewarded. And finally, to make you feel better, you’re not alone…
LPL’s article started off with a reassuring message in these times of nutty volatility. It said, “Although market uncertainty might make you feel jittery, keeping your investment cool is critical to your financial success.” I totally agree. No doubt, it’s difficult watching your cherished portfolio bob up and down. Before you drive yourself batty, consider these six things before, as LPL puts it, “acting out of emotion”:
1. Again, remember “This. Is. Normal.”
It goes with the territory and that is, ‘volatility is part of investing’. Yep, when stock prices steadily rise with little movement, it’s easier said than done, but don’t forget the fact that volatility is incredibly common. It’s the norm, not the exception.
The past teaches. Always remember what happened in the past. If you’re old enough, you’ll recall the early 2000’s ‘tech bust’, then again in 2008 with the big boom. It happens. That’s why they call it, ‘cyclical’. The market dips like clockwork almost annually. Don’t fret, and especially don’t freaking panic. Because, let’s face it, the ‘best part may be what happens after these dips’, says LPL. I agree.
Get this, research show that after a correction, the average returns exceed 23% over the next 12 months.1 Nice!
2. Patience, my friend. You’ll be (typically) rewarded.
LPL did a good job with their research. LPL states, “Investing in the stock market gives you a chance to profit from innovation, economic progress, and compound growth. But to get results, you need patience and time.” LPL went on to say, “On this note, it’s helpful to keep the market’s performance history top-of-mind:
Since 1990, the Dow Jones Industrial Average has achieved 9.5% annualized gains, including dividends. Even if you were to look at shorter time horizons since 1950, the S&P 500 has risen 83% of the time across a five-year horizon, 92% across 10-year periods, and 100% of all rolling 15-year periods.2
And while history can’t predict future performance, it can give you an idea of what could happen if you try to take a shortcut or “panic sell” when markets are fluctuating:
From 1990 to 2020, the S&P 500 Index’s annualized gain was 7.5% (excluding dividends), but the average equity investor’s return was only 2.9%.3 Why the 4.6% gap? Because when stock prices begin to fall, many investors given in to fear, which drives them to sell their investments – even though it may not be in their best interest.”
My fav investor, like millions of others’ is the ‘oracle of Omaha’, Warren Buffet. He once famously said, investing in the stock market is “a way for the impatient to transfer money to the patient.”4
3. Market timing doesn’t work
We’ve heard it over and over. But clients keep trying to outsmart the smart guys who do this for a living. Analysts and CFA’s keep telling us not to time the market, it could be a costly mistake. Do people listen? Of course, not. We’re human.
LPL says, “It’s impossible to predict when a stock or the market as a whole will peak or bottom, even if you’re an expert. In a market decline, if you sell in fear of losing more, you’ll then have to figure out when to jump back in, which is equally difficult. Plus you risk locking in your losses if you re-enter at the wrong time. For example, between 1990 and 2020, the biggest gains (and losses) in the market happened within days of each other, which means you didn’t have to be out of the market for long to miss out on the upswing.2 Because even in “bad” markets, there are a lot of good days, and you want to be “in” for those days.”
4. No Sweat, Opportunities abound
The creative analyticals tend to win at this game of looking at volatility from both buying and selling angles. LPL reminds us, “When stocks decline, you can “buy in” at a lower price and potentially make money when the market rights itself. When the decline is part of an overall cycle, this means stocks are trading below their intrinsic values, which means they offer an improved price-to-earnings ratio.”
5. LPL says, “There are ways to enjoy a smoother experience“
Good ‘ol dollar-cost averaging(DCA). It’s simple and basic, but it works. DCA can help reduce the overall impact of price volatility and lower the cost per share of your investments. Forget about timing the market; trying to get in and out at the “right” time. Instead, dollar cost averaging can be a better strategy to help you avoid timing mistakes. Ultimately, it removes the dreaded, ’emotion’ from your decision-making process. DCA can help keep your long-term goals in mind.5
6. We’re all in it together. You’re not alone
As a final reminder, LPL tells us that, ‘in times of market volatility and economic uncertainty, remember that you’re not alone.’ Good advice for the wary. The best advice LPL had in their entire article was this: Consult your financial advisor for additional perspective and context, and review your investment strategy from a life-goals perspective to ensure you’re headed in the right direction to pursue your financial goals. As a fiduciary financial advisor, I commend LPL’s wisdom. Smart guys.
1 Source: LPL Research, Ned Davis Research, FactSet 4/29/22
2 Source: LPL Research, FactSet 4/29/22
3 Source: LPL Research, Bloomberg, DALBAR, ClearBridge Investments 6/30/21
4 Source: “Winning In The Market With The Patience Of The Wright Brothers And Warren Buffett,” Forbes, (January 2018).
5 Source: https://www.forbes.com/advisor/investing/dollar-cost-averaging/
This material was prepared by LPL Financial, LLC.
Retirement Liquidity: The Mango Tree
Don’t tie-up all of your assets, but don’t have them all liquid either…
Having your assets liquid may feel good because it’s accessible. But at the same time, let’s consider the big, longevity picture. We American’s are all living longer than ever. And when it comes to generating income during retirement, having your assets liquid at all times may actually increase the risk of your assets not lasting for your lifetime.
Your Retirement Mango Tree
Think of all of your assets as one mango tree with branches (your principal) producing enough mangos (income) you need to live comfortably during retirement. In the beginning, you may think there’s no harm chopping off a branch or two (liquidity) for firewood due to the overall size of the tree. But, when doing this you are “double counting” the asset for being equal to meeting two needs. The number of mangos produced would be lower and if you keep chopping off branches, there may come a point when your tree cannot produce enough mangos and cannot grow new branches, ultimately reducing the life of your tree. No more tree, no more mangos.
There are many decisions you will need to make in your life as you enter into retirement. One of the many financial decisions is what to do with the assets you had accumulated for retirement. Your paycheck is ending. It’s up to you to make a new one to last for your lifetime with your assets.
Retirement at Risk
After the market crash of 2008, percentage of American households who are “at risk” at age 65 increased to 51% (2009) from 43% (2004) according to the National Retirement Risk Index.1
Now, think of your assets as being multiple mango trees…
You fence off and give up your access (liquidity) to some trees so that these trees are only there to produce enough mangos to cover your necessary expenses. The remaining trees are for producing mangos and firewood for when you need it.
Under this approach, you have established sources for solely producing income and you also have sources for your liquidity needs.
Create one mango tree or multiple mango trees?
Your view about retirement should be long-term because it is unknown as to how long your retirement years will be; therefore, you should explore financial products that can provide income for your lifetime and that of your spouse’s lifetime. One of the main reasons that you save for retirement is to produce income (mangos) for your necessary expenditures, like paying your mortgage/rent, food and utilities, so you can live comfortably during these years. In addition, a portion of your income should be independent from and not reliant on market performance. Finishing confident is just as important as beginning confident.
Earlier the Better: Create Your Plan Today
Here are some action steps you can take today to better prepare for retirement:
- Understand how your lifetime sources of income work, like Social Security, and explore possible ways to increase these sources.
- Compare your retirement income with the total amount of your expenses — necessary expenses and comfort-living expenses — to see if you have a retirement income gap.
- Purchase financial products that can provide guaranteed payments for life or for the life of the surviving spouse, and that can provide protection for unexpected events.
- Follow a distribution/withdrawal plan by accessing pools of assets at certain points in time during retirement. This can help you lengthen the life of your assets, gain the potential benefit of compounding growth and systematically increase your retirement income when you need it most.
- Work with a financial professional to fully explore your options for developing your income plan for retirement.
1The National Retirement Risk Index measures the amount of American households who are at risk of not being able to support their pre-retirement lifestyle during retirement. This index is calculated by The Center of Retirement Research at Boston College and the report can be found at http://www.crr.bc.edu®
Confronted by Older Self, People Save More
Since 2001, I’ve worked with young active-duty servicemembers in the military, trying to get them to save more for retirement. I can attest, the majority really don’t think much about retirement. How can we blame them; it seems so far off from now. In fact, according to research, two out of five don’t think about it at all.
Hal Hershfield, a professor UCLA’s Anderson School of Management is using age progression algorithms that basically mimics the processes of aging to see if Americans might save more if they literally faced the future. (See age progression of actress Angelina Jolie above.)
According to Hershfield, there is a real, positive impact in helping people to save more for their future. He stated, “In one of the studies we found people who were exposed to images of future selves allocated about twice as much money to a hypothetical saving account.” Hershfield said, “It allows people to say okay there is this future version of me and that person is going to benefit or suffer from the choices that I make today.”
Want to learn more, check out this link: http://www.cbsnews.com/news/back-to-the-future-technology-helps-adults-save-for-retirement/
High-Risk Investments: Are You a Gambler? Like Rolling the Dice?
In Hawaii, many of our island residents consider Las Vegas their second home. It’s the “9th Island” in the Hawaiian chain. It’s a lot more accessible than Monte Carlo, and they even have ono grinds.
But here’s a message for all investors who like playing with high-risk investments: Math is not money, and money is not math. Imagine you are investing $1,000 in a mutual fund. You have a fantastic first year, earning a 100 percent rate of return, bringing your balance to $2,000. In year two, things go poorly and the investment loses 50 percent. Your balance is now back to $1,000. In year three, the market goes up and you earn 100 percent again, bumping your balance back up to $2,000. The fourth year markets tank again and you lose 50 percent. Your balance has now fallen back to $1,000.
Notice that your beginning and ending balances are exactly the same. Your actual yield is a big fat 0 percent. Here’s the interesting thing. What is your average rate of return? 25 percent. I know any investor would love to get a 25 percent return. A mutual fund with this exact performance could advertise, “Our fund has averaged 25 percent over the last four years.”
It’s a true statement. It is not illegal or blatantly dishonest. It simply fails to illustrate the fact that investors actually ending up with no return.
One of my close friends (and fellow Bruin) is now a major league hedge fund manager. He knows something about high-risk investments. But what does he have in his portfolio, aside from his astute equity choice of index funds? He has a guaranteed contract with Guardian Life Insurance Company of America. As a 150+ year old mutual company, Guardian pays him a respectable RoR on his participating policy. To be sure, Guardian distributes its profits to policyholders as dividends through the insurance policy. Whereas, on the flip-side, a non-participating policy is a policy that does not earn profits from the insurance company. While a dividend-paying whole life policy is not considered an investment, it certainly returns handsomely on an investor’s investment of capital into it.
In fact, to be clear, the primary purpose of life insurance is to provide a death benefit to help replace lost income and protect loved ones from the financial losses that could result from the insured’s death. However, a dividend-paying whole life policy does more. Aside from many other benefits, it offers a number of tax advantages, many of which are unique to life insurance. For brevity, here are just three huge tax benefits of life insurance:
1. You pay no current income tax on interest or other earnings credited to cash value. As the cash value accumulates, it is not subject to current taxation.
2. You pay no income tax if you borrow cash value from the policy through loans. As a general rule, loans are treated as debts, not taxable distributions. This can give you virtually unlimited access to cash value on a tax-advantaged basis.
3. Your beneficiaries pay no income tax on proceeds. Your beneficiaries generally receive death benefits completely free of income taxation.
In my decade-plus professional experience and humble opinion, people are simply unaware of the ways, or let’s just say, the right ways to utilize this most versatile of financial products. It is for this purpose that I strive to educate my clients. People need to realize that taxes will ultimately have the biggest impact on their retirement dollars down the road. Now is the time to address it.
For any conservative, long term investor, a properly structured dividend-paying whole life policy will outperform any tax-deferred option available. To boot, with our new technologies such as the Living Balance Sheet®, we can back it up anytime with real-time mathematical calculations. It’s empirical. However, like everything else, there are caveats. It all depends on one’s circumstances. And please, don’t take my word for it. Think for yourself and do the necessary analytical research. It must be based on your unique set of variables. If you do need any help, please contact my offices and let’s meet. There’s no cost and absolutely no obligation on your part. At minimum, I’ll help you run the numbers and you can decide for yourself. Here’s to your continued success!
States You Shouldn’t Be Caught Dead In
A colleague of mine, Gregory Gassert, who is in our Minneapolis affiliate at Guardian Wealth Strategies, was recently featured in a WSJ article entitled, States You Shouldn’t Be Caught Dead In. In this piece, Hawaii is featured as one of two states that track the U.S.’s $5 million-plus exemption. However, as Gassert shares, “most state exemptions aren’t indexed for inflation, extending the tax’s reach over time.”
So what can be done to minimize or avoid potential problems? As with most financial planning issues, experts say, “careful planning is required to avoid traps—especially for taxpayers who move to another state.” And to be clear, there are a host of strategies to mitigate federal and/or state estate taxes. For one, consider section 529 of the Internal Revenue Code which provides for an often overlooked estate planning vehicle designed to protect assets away from estate taxes over multiple generations and can act like an education endowment. For more applicable details as it relates to your situation, you will want to have a more in-depth discussion with your estate planning attorney or CPA. http://online.wsj.com/news/articles/SB10001424052702304682504579155510034634716
Income Planning: Don’t Eat Your Seed Corn
Growing up on Maui, we drove by several acres of corn fields every day to get to school in town. I always wondered why they chose to grow corn amidst cane fields outside of Kihei. It turns out that the agricultural biotech industry, which includes seed corn research companies like the huge Monsanto Corporation, develop new varieties of corn on the Mainland in the summer and sent it to Maui for multiplication during our mild winter. That lets the seed companies bring new cultivars to market a season earlier. As a Maui boy, all I knew was that we never ate that corn. They were growing seed corn, and unbeknownst to us we were learning a valuable lesson in practical economics.
My dad once told me when I was younger that seed corn is what farmers need to plant now to get a crop to live on in the future. If you eat the seed corn today, it may be tasty and you may live well in the short-term, but you could have some major problems down the road. It’s the origin of an old country saying that’s full of wisdom: “Don’t eat your seed corn.”
The analogy applies to individuals and businesses. One of the purposes of strategic planning is to help ensure that businesses invest their capital for tomorrow. The same holds true for individuals and families, as it relates to retirement income planning. The more seeds you plant today, the better your chances will be of having enough in the future.
Some say it’s the main difference between the rich and poor in America—the ability to delay gratification in anticipation of greater rewards in the future. And because many Americans have been feeding at the trough—stuffing their faces with seed corn—now there’s nothing left.
This is where “retirement income planning” comes into play. If all you do is consume what has already been reaped from prior investments, eventually you will run out of funds. Of course, if you’re a “pensioner”—workers having traditional pension plans through their employers—this doesn’t apply to you as much. I’m directing this article toward those individuals who are relying on personal savings, IRA’s or 401(k) plans to fund their retirement.
It’s not an easy pill to swallow. After spending a career accumulating money for retirement, the idea of cashing in those investments to create income can bring on anxiety for many people. Their common fear is running out of money when they’re too old to do anything about it.
In fact, according to a new poll by Allianz Life Insurance Co. of North America, of people ages 44 to 75, more than three in five (61 percent) said they fear depleting their assets more than they fear dying.
Fortunately, there’s a financial tool that can help. To learn more about how it can boost your retirement security by transforming a portion of your savings into income that’s guaranteed for life, please feel free to contact me at mgarrettwheeler@gmail.com.
“Living Value”—The Other Side of Life Insurance
At The Wheeler Group LLC, we run across many people who, before meeting us, were simply unaware that there is any such thing as “living benefits”, or “living value” when it comes to life insurance. Rather, they think of life insurance—in its simplest form—as simply a means of securing funds to cover financial obligations, such as a mortgage, or to replace income in the event of the death of a family breadwinner. It’s no wonder that the death benefit under a life insurance policy is often its most important and most well-understood feature. But there is so much more to life insurance consumers need to know.
First of all, not all policies are the same. For starters there’s the huge difference between mutual companies and stock companies. But I’ll save that discussion for another post. With a permanent life insurance policy, there is typically a component that allows cash to accumulate, and it may be used to help supplement a number of financial objectives, such as a retirement plan or a child’s education. Because permanent life insurance may be used to supplement a savings program, it has a “living value” in addition to the traditional death benefit feature. Let’s take a closer look.
The Value of Cash Value
The cash value in this type of life insurance policy accumulates on a tax-deferred basis in the same way that money does in an Individual Retirement Account (IRA). Because of this tax-deferred accumulation, there may be some income taxes due upon withdrawal. However, you are generally only taxed on amounts that exceed the total amount of premium payments you’ve made over the course of the policy’s existence.
One of the key benefits of permanent life insurance is that you can access the accumulated cash values through policy loans without the worry of taxes or penalties. Generally, the loan interest rate is stated in the policy and is comparable to traditional lending rates. Bear in mind that access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, can increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.
Another interesting aspect of a permanent life insurance policy is that, unlike a traditional IRA or another qualified plan, you may make premium payments after age 70½, and there are no rules that stipulate you must begin mandatory withdrawals of cash values by age 70½. This feature may provide you with an excellent opportunity to continue making premium payments and receiving the benefits of tax-deferred accumulation of cash values.
With a life insurance policy, there are few rules that limit the size of premium payments. Simply stated, the higher the death benefit, the higher the premium. Some forms of permanent life insurance allow you to make premium payments in addition to what was stipulated under the terms of the policy. Often, paying additional premiums may increase the cash value.
Care should be taken to avoid “overfunding” a life insurance policy, because that may lead to some adverse tax consequences. Generally speaking, however, policies are issued so they avoid this possibility altogether.
Dual Purpose Protection
Life insurance serves many purposes. Through its death benefit, life insurance aims to help protect and secure your family’s future in the event you suffer an untimely death. At the same time, life insurance with a cash value component may provide you with the opportunity to use the benefits of your policy during your lifetime. In this respect, life insurance can be a ready source of cash to help supplement an array of financial needs. A review of your current coverage may help show you how cash value life insurance can fit into your overall financial plans. Please feel free to contact Garrett Wheeler at (808)216-4147, or via email at gage@successhawaii.com.
Estate Planning and the Importance of Drafting a Will
Often, the prospect of writing a will brings up feelings of discomfort. And yet, devising a will is one of the most important factors in estate planning, one that should promote feelings of security. Doing so means that heirs will be provided for and your distribution wishes will be met. Like many people, have you postponed the task of writing a will? Or, is it time to review a will drafted years ago? A will is a formal, legal document instructing your survivors in the settlement of your estate. A qualified, experienced, legal professional can help ensure your will is properly written and contributes to the overall success of your estate plan.
Composing a will helps to ensure that you control how your estate is divided. An estate that is not covered by a will (also known as an intestate estate) will bring into effect your state’s intestacy rules. These rules govern how your estate will be divided and by whom. Some people may believe their estate is too minor to need a will, but even if you believe this is the case, you should consider writing one anyway. The reason is simple: If you die without a will, you automatically forfeit the chance to direct the dealings of your estate. In addition to facilitating bequests, a will is an opportunity for you to designate your own executor, guardians for minor children, and other fiduciaries.
If you have decided that you would like your estate to pass to personal friends or charity, a will is the primary means of fulfilling these wishes. Without a will, the courts will have no way of knowing your preferences and will seek relatives—however distant—for distribution purposes. For those who have life partners and are not married, wills are a means of helping to ensure that these loved ones will be included. In addition, a will offers the opportunity to designate a secondary beneficiary in the event of the primary beneficiary’s death.
Even those who have shifted the majority of their assets into trusts or who use joint ownership should draw up a will. While these methods are designed to bypass probate (the judicial process that establishes the validity of a will), they are not able to cover all assets. A will, however, does have the potential to cover all assets, leaving no property unaccounted for and no stone unturned.
Wills are a means of providing security to you and your loved ones. The topic may be emotionally challenging, but when the many advantages are considered, they far outweigh temporary discomfort. Careful estate planning is the best way to identify how your assets will be divided, who is to be named executor, and who will receive benefits according to your wishes. Consult a legal professional for specific guidance.
Copyright © 2011 Liberty Publishing, Inc. All Rights Reserved.
Why Many Millionaires Don’t Feel Rich
The term “millionaire” once inferred that a person was part of society’s upper crust, able to enjoy luxuries most only dreamed of, including vacation properties and early retirement. The Gilded Age of the 1980s was all about flaunting excess, as echoed in the movie “Wall Street” and television series like “Dallas” and “Dynasty.” Back then one was perceived to be “rich” if he or she had an income around $100,000, according to a USA Today article released on May 22, 1987. By 1989, American millionaires had become quite common: there were about 1.5 million of them. That number has boomed. As of 2009, there are 7.8 million millionaires living in the United States, according to Spectrem Group. (Making this dream come true takes work, but it’s well worth the effort. See 10 Steps To Retire A Millionaire.)
TUTORIAL: Retirement Planning
The Millionaire Outlook
However, being a millionaire today doesn’t get a person so far as it once did, and the millionaires themselves are painfully aware. Fidelity Investments recently released the findings of its Fidelity® Millionaire Outlook survey, which looks at “investing attitudes and behaviors of more than 1,000 millionaire households,” according to the Fidelity media release. This year’s study revealed that 42% of millionaires surveyed do not feel wealthy; 46% said the same thing in 2009.
Why are American millionaires lacking such self-confidence toward their own success? It may have something to do with relativity. In wealthy West Coast cities like San Francisco and Palo Alto, home to the mega rich like PayPal co-founder and venture capitalist Peter Thiel, and Facebook CEO Mark Zuckerberg, being a millionaire isn’t enough to launch you into a life of luxury – or even make you stand out from the pack. In 2007, Match.com founder Gary Kremen, explained to the New York Times that “you’re nobody here at $10 million,” referring to the concentration of money in Silicon Valley.
Increased Cost of Living
In addition to the surrounding competition, the cost of living in millionaire-dense areas is enough to chip away at anyone’s net worth. The ACCRA Cost of Living Index, published by The Council for Community and Economic Research, lists cities in New York and California among the top 10 most expensive places a person can reside. Manhattan is the most expensive, indexing at 207.9.
Another reason millionaires might not feel so rich is that from a day to day standpoint, they’re not actually living much differently than the rest of us. Being coined a millionaire once led to the conclusion that one did a lot more play than work, a stigma that no longer applies to millionaires in 2011. According to Spectrem Group, the average United States millionaire is 62 years old. Just 1% of millionaires are under the age of 35, and 38% of millionaires are 65 and older. West Coast millionaires skew slightly older.
Further, a large number of individuals in the Mountain States and Texas never plan to retire, and millionaires in the Northeast and West Coast make up the largest percentage who don’t have plans to retire for at least 10 more years.
Living on Less
According to “The Millionaire Next Door: The Surprising Secrets of American’s Wealthy” by Thomas J. Stanley and William D. Danko, frugal living may also contribute to the insecure self-perception millionaires have regarding their wealth. Their research found that the average millionaire lives on less than 7% of his or her wealth, wears inexpensive suits and drives American-made cars that are not the current year’s model. Throw the lagging housing market and volatile stock market into the mix, and it looks like millionaires may not be any better off than the rest of us when it comes to the ability to rest on our financial laurels.
Given all these factors, what will take millionaires to feel rich again? Those surveyed by Fidelity pinpointed $7.5 million as the investable asset level that would make them feel back on top. (Becoming a millionaire is not as hard as you might think – it just takes time. Check out 6 Simple Steps To $1 Million.)
And why pay attention to the millionaire “woe is me” findings? They could truly be the key to your own financial future. While millionaires’ confidence level in the economy is negative, their outlook for a recovery is at the highest level since 2006, the year Fidelity began keeping tabs on them. Of those surveyed, 43% said they plan to return to stock market investing within the next 12 months. In a Fidelity-released media statement Michael R. Durbin, president of Fidelity Institutional Wealth Services®, explained that “millionaires’ outlook could be seen as a leading indicator of the direction of the economy, especially since the last time we conducted this survey in early 2009, they forecasted improvement in all aspects of the U.S. economy at the beginning of 2010.”
The Bottom Line
Whether you envy millionaires or shake your head in awe at their lack of financially secure feelings, you can stand to benefit from following their lead, whether you choose to get back into the market, scale back your spending, or continue to live just as you do. One day, you just might be a millionaire, too.
This article was posted on April 13, 2011 in the online magazine, Financial Edge, by Investopedia.com
SEA Financial Hawaii 