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- Financial planners who work with millionaire clients say many have similar habits that help preserve their wealth.
- His wealthiest clients create and follow financial plans and don't try to time the market.
- They also tend to look for ways to reduce taxes and over-plan for retirement.
Many of the wealthy have strategies for making their money last, and financial planner Patrick Rush, who has advised the wealthy for years, says many of his clients share a few common characteristics.
“Most of our clients are millionaires who live next door,” he says. “They're not super rich, but they're very disciplined savers who put money away in 401(k) plans and brokerage accounts and have over $1 million saved by the time they retire.”
From his years of experience working with such people, he says there are five common approaches he sees that help wealthy people continue to grow their wealth over time.
1. Wealthy people create a financial plan and follow it
Rush says wealthy people who maintain and even grow their wealth over time always have big-picture financial plans in place.
For many of his millionaire clients, financial planning means more than just how to spend and save.
“You'll need to know all the details, including your family's budget and expenses, the types of insurance you have, any estate plans you have in place through legal documents, and your goals for leaving a legacy to family and charities,” he says. Financial planning often also takes into account taxes, employer benefits, and investment plans.
Wealthy people have the right support in creating this plan and know what steps they need to take today to make it happen.
2. You don’t worry about or manage your investments often.
Most of the wealthy people Rush works with don't have stock trading in mind — they're not trying to time the market or strike it rich on the next hot stock. Instead, Rush says he encourages his clients to take a long-term view of investing.
“We're not trying to beat the market. We just want to leverage market forces to give investors the best chance of success,” he told Business Insider. Often, simply buying a stock and holding it for the long term creates the best chance of success.
For many of Lush's wealthy clients, investing is a matter of patience rather than an active process: “We know we're not going to get it right every year, or every three years, or even every five years, but we know that over time we're giving our clients the best possible chance of success.”
3. Over-planning for retirement
For many people, retiring from full-time work means living on less and making sacrifices. But with careful planning, the wealthy stay wealthy in retirement.
Rush says his clients often over-plan for retirement: “We assume that their life expectancy is 96 years, because we know that for a healthy 65-year-old couple, there's about a 25% chance that at least one of them will live to 96.”
With careful planning, the wealthy can maintain the same standard of living for longer in retirement. “After all, the last thing we want is for you to run out of money.”
4. Find ways to reduce your taxes
The wealthy have learned how to reduce their tax bill through careful planning.
They know how to take advantage of certain tax benefits and incentives to reduce your tax bill now and in retirement. Taxes can be complicated to understand, but reducing your taxes is part of your overall financial plan and is considered every step of the way, from where you invest to how you give.
Paying less tax means you can keep more wealth in the long run. For people who have built up wealth and moved into higher tax brackets over time, reducing the total amount of tax they pay is an important way to preserve their wealth.
5. Incorporate charitable giving into your financial plan
Alongside tax efficiencies, wealthy people often incorporate charitable giving into their financial planning. Not only do most wealthy people feel an obligation to donate, but there are also numerous tax benefits.
These gifts can take many forms, including monetary donations, but also gifts of stock and even distributions from an IRA after a certain age, according to Rush.
Charitable donations can help lower your total taxable income and potentially reduce your income tax and Medicare premiums in retirement. Donations serve two purposes and are beneficial in many ways.
This article was originally published in January 2021.
