Many people dream of enjoying a luxurious retirement, but for the truly wealthy, that dream is more of a reality. The question is, how do they get there?
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Ensuring a luxurious lifestyle in retirement is about making strategic financial decisions during the working years that pay off in the long — and short — run. While high-net-worth individuals are often already poised to do this, almost anyone can do the same.
That said, here are the top things the wealthy do to ensure a luxurious retirement.
Save and Build Income
Being able to save is only part of the path to a luxurious retirement. Finding multiple sources of income — active and passive — is also part of it.
The wealthy “maximize their savings and invest savings in brokerage accounts or real estate to generate additional income,” said Paul Miller, managing partner and CPA at CPA Firm New York.
Miller added that they also often start additional side businesses that earn additional income. Rather than simply spending this income, however, they find ways to increase their savings and investments and build toward their ideal lifestyle in retirement.
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Have Multiple Homes
Having more than one home might not seem like it, but it can actually be a very strategic financial move.
“My wealthiest clients usually have multiple homes in different locations for both lifestyle and strategic financial purposes,” said Steven Neeley, chief investment officer and financial advisor at Fortress Capital Advisors. “They are able [to] bounce between locations that they find desirable while saving a tremendous amount of money by domiciling in the lowest tax jurisdiction.”
As an example, Neeley mentioned that some of the wealthiest individuals buy second homes in places like Puerto Rico and spend enough time there to become residents. Once they’ve done that, they split their time between their two homes — one of which is often in a lower cost or financially strategic area.
This isn’t always easy, but it’s generally worth it.
“The rules for maintaining bona fide residency are strict and they do require some effort, but it’s usually well worth it because the tax savings can be substantial,” he said. “This approach not only allows them to retain more of their wealth but also enhances their ability to enjoy a truly luxurious lifestyle.”
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Max Out Tax-Advantaged Accounts
This is something anyone can do, but even the truly wealthy will often take advantage of tax-advantaged accounts. Miller said they’ll often maximize their 401(k) plans — with employer matching if possible — or IRA contributions. Those who own their own businesses will also contribute the maximum amount to their pensions.
Tax-advantaged accounts often have rules surrounding them, like maximum annual contributions or income limits. For example, the annual limit for 401(k) plans is $23,000 in 2024. The limit on IRAs is $7,000 — $8,000 for those who are 50 or older.
Combining different accounts and taking advantage of their tax advantages is a straightforward way to continue to build wealth and achieve a luxurious lifestyle in retirement.
Minimize Debt and Expenses
No matter how much money a person makes, if they have high living expenses or a lot of debt, it’s going to be hard to retire wealthy. That’s why many wealthy individuals who want to maintain a similar lifestyle once they retire prioritize getting rid of their debts and lowering their expenses.
“[The wealthy] pay down mortgages and credit card or loan debt as soon as possible, refinancing high-interest mortgages when rates are lower,” Miller said.
This makes sense as those interest charges can be killer, and significant debt can drain anyone’s retirement funds.
Miller added that wealthy individuals tend to find ways to cut unnecessary expenses. This includes both personal and business expenses.
Strategize With a Team
It’s hard to do everything alone. Working with a couple of financial professionals can make it easier to achieve long-term goals like a luxurious retirement.
“I’ve seen many wealthy clients achieve a luxurious retirement through careful financial planning,” said Ryan McEachron, CEO of ISU Armac. “The top thing they do is work with a financial advisor to create a comprehensive plan that accounts for their goals and risk tolerance.”
Other professionals, like accountants and financial planners, can also help them find ways to maximize their income, savings and investments while reducing their tax burdens.
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Invest Over Time
Investing is a long-term strategy to build and maintain wealth — long after leaving the workforce.
“The most important thing is starting to save and invest as early as possible,” McEachron said. “Time is the most valuable asset, and the more time your money has to grow, the less you need to contribute to reach your goals.”
He added that many wealthy people invest early on in the market through ETFs and index funds. This gets them broad exposure and lets them take advantage of compounding returns over time. And when they do it strategically, they can also reduce fees and taxes, which can also save them money over decades of investing.
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This article originally appeared on GOBankingRates.com: 6 Things the Wealthy Do To Ensure a Luxurious Retirement
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