Ideally, the earlier you begin saving for retirement, the better, especially if you want to meet the $1 million goal. Starting later in life doesn’t mean reaching your financial goals is not impossible, but you will need to do some catching up.
Whether you’re younger and want to get on the path to meeting your $1,000,000 target goal or if you have already begun building your retirement portfolio and want to ensure you make the most of your investments, you’ll need to do careful and strategic planning.
Regardless of age, investing for your retirement years is critical, but the strategies you utilize will likely need to change as you grow older. This means, that as your investment portfolio grows, you’ll make changes to it. Investing is not a set-it-and-forget-it type of planning.
This article aims to assist high-net-worth individuals in maximizing their retirement income by presenting three top strategies, enabling you to make informed decisions so you can enjoy long-term financial stability.
3 Strategies for Your $1 Million Retirement Portfolio
A tried-and-true approach many financial experts recommend is to diversify your investments so you have several different areas to draw from as you approach your Golden Years. The following are three good strategies many people use.
1. Live Off Dividends in Retirement
If you have a $1 million portfolio, chances are you’ve spent time investing in the stock market and know you can receive a dividend disbursement from the company. Depending upon how well your stock investments do, and if stock prices consistently increase and pay out, you could theoretically rely on these disbursements as a part of your retirement strategy.
Benefits you can expect to potentially gain from income derived from your dividend portfolio include:
- Cash income provides you with liquidity and financial flexibility
- Potential for appreciation with values increasing
- Protection from inflation since a company’s dividend rate will rise with strong performance
- Reliable companies can provide stable dividend income
- Tax benefits
- Potential to compound your dividend amounts by reinvesting some or all of them to expedite growth potential
With all this being said, the stock market is known for its volatility, so you will want to invest in companies with a long, solid track record in terms of financial performance while balancing what you choose with your risk tolerances.
Partnering with a skilled and knowledgeable financial advisor is recommended if you want to pursue this strategy as a part of your retirement planning, especially if you have a large investment portfolio, since these tend to be complex. You want to ensure you’re getting the most for your hard work and savings.
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2. Secure Your Income Stream with Annuities
Annuities are another potential mechanism to bolster your income stream to firmly establish it as a source of reliable income for your retirement years. According to some statistics, in the second quarter of 2022, annuity sales rose 22% to $77.5 billion.
You may be asking yourself what an annuity is. If so, you’re not alone in wondering how many stocks and annuities can fit into your investment portfolio.
What is an annuity?
In the most basic of terms, annuities are financial products sold by insurance companies, banks, or brokerage firms. They are designed to provide investors with reliable, guaranteed income over a specified period or for the duration of one’s life.
How Do Annuities Work?
How it works is you make a lump sum payment or several payments (premiums). In exchange, you will receive regular payments either right away or at a future date.
An annuity contract involves three parties: the owner (person purchasing the annuity and paying premiums, the annuitant (person receiving the benefits, usually the owner), and the beneficiary (individual receiving the death benefit when the annuitant passes away).
Many financial planners may recommend annuities because they are a guaranteed source of funds upon retirement age.
Be Wise About How You Choose Annuities
Being there are several different kinds of annuities, you want to be selective in how you choose to invest in them, because not everyone will find this strategy to be their best option.
While you will receive a guaranteed income stream that is customized to your needs, there are fees involved and they can be complex.
This can be resolved by working with a financial professional who can guide you to the right products and annuity strategy.
3. Bucketing Strategy with Multiple Asset Classes
Taking the bucket approach to high-portfolio retirement strategies is a popular method. Essentially, you divide your retirement savings into three buckets. These buckets will be determined by when you need to access funds. This is generally how you’ll approach:
Bucket #1
Emergency funds and readily available cash for living expenses (including major purchases) in a high-yield savings account. Growth potential is not high, but it’s guaranteed and accessible.
Bucket #2
Funds not needed for the next three to 10 years can go in longer-term, safe accounts, such as CDs, money market accounts, traditional IRAs, or bonds. If you’re OK with low-risk, you can also consider putting some money into mutual funds.
Bucket #3
Any money you do not plan to use for more than 10 years can go into the third bucket. In many cases, you can do a little asset allocation and place some money in stocks and other higher-risk strategies to help you earn more money to boost your retirement accounts.
The bottom line is, that spreading out your assets keeps you balanced and able to access your money while still growing your retirement nest egg.
Managing Retirement Portfolio Risks
Speaking of spreading out your assets, this also helps you manage risk. How you approach managing retirement risks will largely depend upon your age.
- Younger people saving for retirement have more room for risk because if they lose money, they have more time to earn it back. (However, they also typically have less income to invest.)
- People approaching their retirement don’t have much time to recover if their investments take a loss, so they tend to be more conservative with the majority of their funds, despite likely having more income to put toward savings.
Utilizing an asset allocation strategy that greatly factors in your age and risk tolerance will help you achieve balanced and effective retirement planning.
Achieving your $1 million goal is only a portion of the equation, you also want to make sure you safeguard a percentage while attempting to grow your investment portfolio so you can maintain it once you begin withdrawing at your selected retirement age.
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1. Inflation Erosion
The economy typically plays a significant role in how people can afford to live while building their portfolios. Since the economy has its ups and downs, everyone must think about inflation erosion.
The inflation rate can jump too high due to imbalances in supply/demand, disruptions in the supply chain, and other economic factors. As a result, prices rise, and you lose purchasing power.
This means you’ll need more income to maintain your lifestyle, either before or after retirement. A small level of inflation is to be expected for every year, but when it soars too high, this has wide implications for all.
2. Market Downturns
Market downturns occur when the stock market shifts from increasing to decreasing prices. When it coincides with a bear market, this can have a dramatic impact on the stock market, causing things to plummet as demand drops.
3. Unexpected Expenses
As the old adage goes, the only certain things in life are death and taxes. To some degree, unexpected expenses can perhaps also apply. Cars, major appliances, or HVAC systems can break.
An injury, illness, or other health condition (e.g. surgery) can lead to high medical bills.
You’ll want to proactively plan for the unexpected so as to ensure you don’t drain your retirement savings, putting your $1 million portfolio at risk of declining.
Choosing the Right Strategy For You
Structuring a financial plan for large portfolios doesn’t come with a one-size-fits-all approach. You’ll have to determine your retirement goals, including your anticipated age of retirement, how much you’ll need to live on, what assets you’ve already accumulated, and any legacy estate planning you want to put into place.
The above three strategies can play a huge role in managing your $1 million+ portfolio. You also might want to consider other strategies, such as:
- Maximizing Social Security benefits to touch less of your investments
- Leverage your health savings account
- Spreading your money across different asset classes
- Withdraw only dividends and interest and leave your principal in the account so it can grow
- Investing in employer-sponsored retirement plans, such as 401(k)s,
By working with financial planners, you and your advisor can explore your available investment options and help you select strategic courses of action, determine the diversification strategy you should take, and develop an overall plan to ensure you have enough annual income to live on while continuing to maintain your portfolio.
Is $1M Enough To Retire?
A common question is how much people should save before they can retire. Is $1 million enough? This question is pretty subjective because many factors will need to be weighed in.
- Age you retire
- Life expectancy (e.g. How many years worth of living expenses will you need?)
- Region you live (cost of living)
- Taxes you’ll have to pay in the state you live in
- Lifestyle you live
- Healthcare costs
According to some figures, a $1 million portfolio will last approximately 19 years for retirees leaving the workforce at age 65. However, in some states, such as Hawaii, that will only last you 10 years, whereas if you retire to a less expensive place to live, you can stretch it out for 20+ years.
Get Connected with a Financial Advisor
Planning for retirement can involve many moving pieces, and you want to position yourself to be comfortable and not worry about how to provide for yourself later in life when you are no longer working.
A $1 million portfolio is very doable for some people, but for others, they may want to build their savings a little higher. This means actively managed funds will be a part of your overall plan for retirement accounts.
Connecting with an experienced and knowledgeable financial advisor can help you build a comprehensive plan involving the right strategies to best meet your financial needs, tailoring the plan to your specific circumstances.
Ready to get started building a customized plan on how to manage your large portfolio? Use Our Free Advisor Match Tool
