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The 5 Biggest Financial Planning Challenges for High-Net-Worth Individuals Thumbnail

The 5 Biggest Financial Planning Challenges for High-Net-Worth Individuals

By Daniel Baumgartner & Petra Peters

Contrary to popular belief, being a high-income earner does not automatically equate to easy savings. While high-income individuals have the potential to save more, many struggle to effectively strategize their savings goals, determine where to allocate their savings, and identify what exactly they are saving for. Without a comprehensive plan, meeting annual savings targets becomes challenging.

However, financial planning for high-income earners extends beyond just savings. It encompasses strategic tax planning, estate and legacy planning, investment and portfolio diversification, and much more. Below, we outline the top 5 financial planning challenges faced by high-income earners and provide suggestions on how you can overcome them.

1. Cash-Flow Management

Just because you make good money doesn’t always mean you’re good at managing it. All too often, we see high-income earners who end up spending most of what they make on expensive items while sacrificing their savings for the future. To pursue your goals and feel confident you can maintain your lifestyle for years to come, you need to be saving much of what you’re making now.

As a high earner, you need to pay yourself first. Contribute to tax-advantaged retirement accounts, high-yield savings accounts for short-term cash needs, and other investments that put your hard-earned money to work for you.

2. Saving for Retirement

Even so, high-income earners face other obstacles in saving for retirement. Annual limits on contributions to retirement accounts are usually too low for you to make meaningful advances toward your retirement wealth. For example, the contribution limit to a 401(k) in 2023 is $22,500 (plus an additional $6,500 if you’re over 50). The contribution limit to an IRA is only $6,500 (or $7,500 if over 50). 

Experts recommend that most people need to contribute at least 15% of their pre-tax income toward retirement, so we’ll use that benchmark as a simple example. If you earn $500,000 per year, you would need to contribute $75,000 per year to meet that 15% goal. Maximizing contributions to a 401(k) and a traditional IRA don’t even come close, so you have to be more creative in finding optimal ways to save for retirement.

3. Tax Planning

High-income earners also risk paying much more than they need to in taxes because their tax returns are more complex. Yes, of course you’ll be in a higher tax bracket. But finding ways to lower your taxable income as much as possible and reduce taxes on capital gains is an important component of financial planning for high earners.

For one, you should absolutely be maximizing contributions to your tax-advantaged accounts, such as an IRA, 401(k), and HSA plans. Second, a tax advisor can help you with year-end tax planning strategies, such as  bunching itemized deductions, capital loss harvesting in non-qualified investment accounts and, if applicable, choosing  when to make qualified business purchases.

4. Safeguarding Your Assets

With larger assets that are meant to protect you and your family during retirement and in case of emergencies, it’s crucial to shield your wealth from external risks. If you pass away and your assets haven’t been properly designated or protected in a trust, much of your wealth could end up going to the government in taxes or estate fees. No one wants that.

Not to mention, your assets need protection as they’re growing too. It’s important to find a balance between shielding your assets from market volatility and as well as from inflation outpacing your returns. For this to happen, your portfolio must be properly diversified and updated to your changing life circumstances and proximity to your retirement date.

5. Neglecting to Have a Plan

Realizing your goals requires time and careful planning, regardless of your income level. Without a well-thought-out plan, you may not be optimizing strategies to reach your goals—or worse, not actively working toward them at all. It is crucial to have a clear understanding of what you want your money to accomplish for you, allowing you to develop a plan that turns your vision into reality.

To have the confidence that you’re making informed decisions that align with your goals and your family’s best interests, it is essential to have a team of support by your side. At Terra Nova Asset Management, our mission is to help you chart the necessary steps to reach your financial objectives and hold you accountable to stay on track. 

Reach out to us directly at 212-355-1234 or ppeters@terranovausa.com for the New York office (Petra) or 855-248-6630 or baumgartner@terranovausa.com for the New Jersey office (Daniel). You may also contact us here to schedule a meeting and we’ll get in touch with you soon! 

About Daniel

Daniel Baumgartner is a founding partner of Terra Nova Asset Management LLC, a partner-owned investment advisory firm that manages individual portfolios for clients. Daniel has extensive experience in marketing, development of special U.S.-investment products, as well as customer acquisition and relationship management. His ultimate goal is to make a difference in his clients’ financial lives through honest investment advice. He strives to provide high-touch, personalized service and enjoys getting to know a client’s personality as it relates to their financial circumstances before crafting the right solutions. As money is a very personal subject, Daniel takes his responsibility as an advisor very seriously, forming long-term relationships with clients based on trust. 

Daniel received his degree in finance and international business from New York University. Outside of the office, he is a hobby landscape, street photographer, and has a great interest in U.S. and European history (16th-19th centuries), believing it helps him answer the question “Why is something the way it is?”

About Petra

Petra Peters is a founding partner and the Chief Executive Officer of Terra Nova Asset Management LLC, a partner-owned investment advisory firm that manages individual portfolios for clients. Petra has decades of experience in the banking industry, asset management, overseeing the administration of individual accounts, and designing and advising specialized funds tailored to the requirements of international private and institutional clients. With extensive knowledge of both Europe and the U.S., she’s able to provide advice and services beyond the typical investment advisor. Petra desires for her clients to live a financially care-free life so they can pursue their passions, and she values their trust and gratitude. Creating invaluable friendships formed over years of partnership, some clients even consider her part of their family.

Petra’s interests outside of work include classical music, history, travel, charities, motorcycling, and golf. She is also on the board of a German charity.