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Can you guess what percentage of a high-net-worth individual’s portfolio is typically held in retirement accounts?
Can you guess what percentage of a high-net-worth individual’s portfolio is typically held in retirement accounts?
High-income individuals (HNWIs) are those who own at least $1 million in easily convertible assets such as cash, stocks and bonds. They often manage significant wealth across multiple portfolios.
According to Empower’s financial dashboard, retirement accounts like 401(k) Plans and IRAs they represent 55% of the total wealth of many HNWIs. This is a stark contrast to the average household. The Pew Research Center reports that these accounts typically represent just 27% of the net worth of households where at least one person has a retirement account.
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The large percentage of wealth held in retirement accounts It’s particularly notable given the tax advantages these vehicles offer. Contributions to plans like 401(k)s and IRAs can grow tax-deferred or even tax-free in the case of Roth IRAs.
For HNWIs, the ability to reinvest profits into these accounts allows compound interest to significantly increase the value of your initial investments over time. This compounding effect is a key component of not only preserving wealth, but also seeing it flourish.
Michelle Brownstein, vice president of Empower Private Client Group, highlights that successful wealth accumulation strategies differ from those needed to maintain and grow wealth. “High net worth investors have discovered that a proactive approach is needed to both grow and sustain wealth“, says Brownstein in statements to CNBC Select. This vision is vital as it reflects the shift from active wealth building to wealth preservation, ensuring that wealthy individuals can maintain their lifestyle after retirement without a drop in their life standard.
Trend: If the United States had access to Current High Yield Savings Account Rates in 2015, it wouldn’t be necessary to save another penny.
However, the data reveals that, although most recognize the importance of a diversified investment portfolio, few prioritize maximizing their retirement contributions. This discrepancy could harm your ability to optimize long-term wealth growth.
Retirement Planning for HNWIs it goes beyond simple savings. It involves strategic contributions that consider future expenses, such as healthcare, which become increasingly significant with age. The costs associated with healthcare, especially long-term care, can be substantial, requiring careful planning and significant resources. This planning is not just about covering basic living expenses, but also about managing potential costs and ensuring that any financial strategy is adaptable to changing economic conditions.
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For HNWIs, retirement accounts are not just a means to an end, but a critical component of a broader financial strategy that includes tax planning, risk management and multigenerational wealth transfer. Effectively leveraging these accounts allows HNWIs to not only secure their financial future, but also support broader family goals and philanthropic efforts, increasing their impact and legacy.
Building wealth takes time and requires a personalized approach. Consulting a financial advisor can help you develop a comprehensive strategy that maximizes your retirement savings potential and aligns with your specific goals and risk tolerance.
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