10 Steps to Better Retirement and Estate Planning

“If they intend to make some post-mortem gifts, that would be one way to do it,” she says. “It runs a little counter to what most of us are taught—you invest in your 401(k) because that’s what you do for your long-term growth, and you have to grow the heck out of them. But you have to run the analysis of what you think the tax rate is going to be when you pull it out.”

People with a high net worth absolutely hate to pay taxes, says John Twele, CEO of Twele Capital Management, Inc., in Minnetonka. And rightfully so—but they shouldn’t let their tax aversion cost them money.

“Avoiding taxes can be number two, three, or four on your list of priorities,” he says, “but if you make it number one, you’ll make suboptimal decisions every time. For example, many people own way too many municipal bonds [because they are tax-exempt]. They’re really one of the worst investments you can make; if you’re lucky, you’ll get the coupon [periodic interest rate paid on a bond.] To do any better than that, you’ll have to see a drop in interest rates, which isn’t very likely because today’s 4 to 5 percent is unusually low.”

If you own extremely conservative investments such as these, you won’t go broke, he says. But the opportunity cost is massive. Sure, you might double your money, but you could have increased it six-fold.

Many high-net-worth people pull their yearly statements together, see the total asset size, and get an inflated idea of the lifestyle they can afford, Clark says. Legitimately, though, you can generally pull income from an amount equal to half your total net worth. When people live a lifestyle commensurate with the whole number, they end up rapidly depleting their assets and backing themselves into a corner. Suddenly whatever they have left is not in a spendable form.

To avoid this problem, Fee suggests his clients work with him to develop a big picture of their wealth. “Let’s say they’ve got 30 percent of their liquid assets in retirement accounts, 40 percent of their liquid assets in brokerage accounts, and 25 percent in real estate—maybe they own a building that houses the business they’ve sold, or it could be that they inherited farmland from their parents,” he says. “What is it that each one of those assets is supposed to do for them, and when? My catch line for this would be ‘know the numbers.’ And you do that by taking all of these assets and figuring out where they are going to be staging in your life.”

In most cases, staging takes the form of laying out a number of timelines and the income required to meet the objectives within those timelines with various contingencies. (Fee’s office has software that enables this process.) Maybe you foresee a business buyout, then the sale of a building, and then you’ll start taking withdrawals from your IRA.