By Dr. Jim Dahle, WCI Founder
For those who’ve been following along, you know that Katie and I reached financial independence around 2018, which was over six years ago. Despite this, we’re still busy working, saving, and investing. Our spending has increased, and so has our giving, yet our financial cushion keeps expanding. As we climb up the wealth ladder, I’ve realized that some things I once held dear just don’t matter as much now. I suspect this is something many wealthy individuals experience.
7 Things the Wealthy Don’t Worry About
Here’s a rundown of seven things that seem to slip off the radar once you’ve got some wealth behind you.
#1 Running Out of Money
When you retire right at the point of having “just enough” or, worse, before reaching “enough,” there’s always the anxiety about funds running dry. It leads to meticulous budgeting, scrutinizing safe withdrawal rates, and fearing fluctuating returns. However, working for a good five years after you reach “enough” liberates you from these worries.
#2 Your Withdrawal Rate
The debate over the 4% rule seems endless in financial circles. Frankly, I find it puzzling. Left untouched, your money could potentially double every 7-10 years. If you continue contributing, the growth might be even faster, doubling in just 3-5 years. If you reached a level to live off 4% a few years back, you’d now comfortably sustain yourself on 2%. Only the excessively cautious fret over a withdrawal rate below 2%.
Explore more:
The Silliness of the Safe Withdrawal Rate Movement
The Risk of Retirement
#3 Asset Allocation
We know from studies that asset allocation has a significant impact on portfolio returns, overshadowing choice of securities or market timing. However, as you aim for financial goals, what really counts is how much you have and save. Pile up enough savings and you can enjoy a portfolio that’s all cash. Achieving financial goals becomes less about what you allocate and more about the fact that you’ve secured a position where asset allocation isn’t a major stress point.
#4 Rate of Return
I still compute our annual rate of return out of sheer academic curiosity. But does it weigh on our financial goals anymore? Not in the least. The same reasons our asset allocation doesn’t matter extend to our rate of return. Sure, multiple years of negative returns would pose a problem, but absent an unlikely catastrophe, we’re secure for a long lifetime financially.
#5 Whether Social Security and Medicare Are Viable
Social Security and Medicare are crucial for retirement plans for most Americans. For 40% of American retirees, Social Security is their only lifeline. Wealthy individuals, often being high earners, draw significant Social Security benefits, sometimes up to $50,000 annually, akin to an inflation-indexed annuity valued over $1 million. While health insurance costs may soar to $30,000 yearly, the significance of these social benefits dwindles as wealth grows. Politically, they matter, but financially? Not so much for those with ample assets.
Explore more:
6 Tips for Those Who Have Enough
How Much Money Does a Doctor Need to Retire?
#6 Tax Rates
Tax rates hold less sway once wealth builds up. High earners lose some deductions due to phase-outs but still keep an eye on tax expenses, which remain a significant cost even into retirement. Yet, the precise rate—be it 35% versus 39% on income or 15% versus 20% on capital gains—becomes a minor point as wealth accumulates and the proportion of income to total wealth decreases.
#7 Leverage
Leverage has helped many build their fortunes. There’s an ongoing debate among investors about whether to pay off debt for a guaranteed return or invest the spared funds elsewhere. The wealthy needn’t worry; they often settle all debts for simplicity. Even if some choose to maintain a limited amount, it’s never enough to burden their financial peace.
7 Things the Wealthy Do Care About
So, what do the wealthy focus on? Quite a few significant matters, it turns out.
#1 Whether They Are Ruining Their Kids
One prevalent concern among the wealthy is the impact of their affluence on their children. Living below their means is common as they wish to avoid spoiling their kids. Many children discover they can’t sustain the lifestyle their parents had, especially if their professions command lower earnings. Moreover, timing and form of inheritance can either build or ruin a child’s work ethic. For the wealthy, ensuring their wealth doesn’t adversely affect their offspring is a primary concern.
Explore more:
My Children’s Inheritance
Economic Outpatient Care and the Aspiring Millionaire Next Door
#2 Their Responsibilities to Society and the Planet
With great wealth comes great responsibility—isn’t that what we’ve learned from culture, even Spiderman? The Notorious B.I.G emphasized this with “Mo’ money, mo’ problems.” If asked whether I want to be a billionaire, I’d decline; the responsibilities seem overwhelming. As varying financial classes have different problems, the wealthy might lie awake at night, burdened by societal responsibilities, rather than simple financial worries.
#3 Personal Risks
In today’s world, being a billionaire can often carry a negative connotation, and millionaire is not far behind. As wealth increases, so does the anxiety about personal safety. Transparency about earnings becomes risky; we had to become less open about our income to avoid potential threats like kidnapping. For the wealthy, fame and wealth are often intertwined, increasing risks. Plus, health becomes a priority as no amount of money can buy lost time, making wealth secondary to well-being.
#4 How Your Favorite Charities Operate
Philanthropy, an essential activity for wealthy individuals, can be complex. A $100 donation might go unnoticed, but millions can seriously impact how a charity functions, requiring responsible giving. Large donations can challenge charity operations, prompting significant involvement to understand how they manage funds. Your choices shape the charity’s efficiency, entailing careful planning and involvement. Even a $10,000 donation can be substantial, necessitating thoughtful giving strategies.
Explore more:
Charity — How to Give, Why to Give, and the Tax Benefits You Can Receive
#5 Estate Taxes
For those whose favorite charity isn’t the federal government, estate planning is critical to minimize or eliminate estate taxes. Nowadays, estate taxes really only concern the wealthy, thanks to the substantial exemption threshold. If your wealth approaches or exceeds this, it’s time to plan ahead. For everyone else, a will or maybe a trust suffices.
#6 Asset Protection
The more you own, the more you think about protecting those assets, introducing complexity to your protection plans. For many, basic insurance and retirement accounts are enough. However, wealthier individuals might look into more sophisticated strategies, like trusts and partnerships, where the cost becomes a negligible part of their wealth.
#7 AUM Fees
As your wealth climbs, so too does the importance of keeping Asset Under Management (AUM) fees in check. Management services might cost under $15,000 yearly for a $1.5 million portfolio, but paying $100,000 for overseeing $10 million seems unreasonable. Wealth lets you negotiate these fees down as they scale, ensuring value matches the service, and avoiding exploitation. As wealth increases, so does your leverage in getting favorable rates.
Even the wealthy have their fair share of worries. Different, perhaps, but concerns nonetheless.
What about you? What’s changed in your worries as your wealth has grown? What’s become a bigger issue? Let’s discuss in the comments below!
