How to approach retirement planning for $2M-plus wealth market

Growth in taxable assets over the past five years has been faster than it has been in retirement assets for U.S. households due to an increasing concentration of wealth, according to a recent survey. As a result, families with $2 million-plus now control $45.3trillion in investable assets.

The concentration of wealth has increased markedly since 2011, said Laura Varas, CEO and founder of Hearts & Wallets, as she shared some of the survey’s highlights. In 2011, she said, 23% of total investable assets were controlled by households with under $500,000 in assets.
Now, these households control only 12%. In addition, households hold two out of three dollars in taxable accounts and one in three in retirement accounts.

Also, she added, households age 55 and over control $51.4 trillion in part due to increasing concentration of wealth. However, among households with less than $5 million, retirees still dwarf all other life stages in both asset and household terms.

In addition, households in all age ranges with more assets are not more likely to be retired than households in the same age range with fewer assets, she said.

“Americans are working longer and even when they retire, they often continue to work,” she explained.

Serving the $2M-plus market

According to Varas, advisors should plan on using different marketing, solutions and service for households who are in the $2M-plus category.

Of the 129.8 million households in the U.S. who have $69.7 trillion total in investable assets, there are 5.5 million households with $2 million-plus who control $45.3trillion in investable assets, she added.

And among the different groups within this segment, three were examined in the study: those in the $2M to <$5M Not Retired market, those in the $2M to <$5M Retired group, and those in the $5M-plus market.

According to Varas, the $2M to <$5M Not Retired households are geographically concentrated in major metropolitan areas.

“This group has different attitudes and goals from the $2M to <$5M Retired,” she said. In addition, members of this group have a goal to have enough money to work less or spend time as they want when they are older, as opposed to outright retirement. They also want to pay off their mortgages and generate income from their investments.

Also, Varas said, they have more difficulty when carrying out financial tasks than the Retired group, they rely more on employers, online, and family as their sources of information and advice, and they make more use of exchange traded funds (ETFs).

The $2M to <$5M Retired group also tends to live in non-metropolitan areas. Advisors who serve this market should recognize that they are more likely than the other two wealth segments to feel inexperienced about investing and to place more importance on: the advisor “explains things in understandable terms” and “has made me money.”

Geographically, Varas explained, the $5M-plus group is evenly distributed and is slightly more likely to be in smaller metro areas. Advisors should focus their initiatives when targeting this group with higher allocation to taxable brokerage accounts and more use of individual bonds.

“The preferred investment decision-making process for half of households with $5M-plus is to “make decisions and manage money on my own,” she said.

Strategies for success

Because the wealth market has changed so much, advisors need new ideas to better serve the retirement planning needs of older households. So what are some of these ideas?

Varas said that firms should offer clients comprehensive family wealth planning with intergenerational dialogue, in addition to income planning, which can account for multiple sources of income after the full-time work of retirees comes to an end. “From guaranteed income products as lower-end solutions, to income-management accounts, all ideas should be back on the table,” she said.

The survey report is drawn from various government sources and the Hearts & Wallets database. The latest study wave was fielded from August 15 to September 2022, with 5,933 participants.

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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