If you have $2 million in retirement savings, congratulations. That’s well above the $1.26 million Americans, according to Northwestern Mutual, think they need to retire comfortably. (1)
At this point, you’ve probably overcome the challenge of saving enough. Now your next mission is to preserve the wealth. Higher taxes and poor lifestyle choices can quickly erode what appears to be a huge treasure.
It is not easy to change your perspective from building wealth to protecting it. But the journey could be less treacherous if you avoid these five common money traps that high net worth individuals sometimes fall into.
If you follow the 4% rule, $2 million in retirement savings will give you $80,000 a year, adjusted for inflation. It can be too much or too little, depending on where you live and how much you spend.
Lifestyle inflation – where your spending habits change with the size of your portfolio and salary – is a real risk. This is perhaps one of the reasons why only 32% of American millionaires, according to Northwestern Mutual, consider themselves “wealthy.” (2)
Of those millionaires, 70 percent who don’t work with a financial advisor said they know how much money they need to retire comfortably. In other words, many high net worth individuals have not taken the time to plan for their retirement budget and lifestyle needs.
Don’t fall into the same trap. Consider hiring a financial advisor to help you create a robust budget that you can easily stick to. While $2 million sounds like a lot, it can disappear quickly and may not be enough for everyone.
If a large portion of your wealth is in tax-advantaged retirement accounts such as 401(k) plans and IRAs, you need to prepare for the tax consequences of making retirement withdrawals.
Less than half (49%) of millionaires without a financial advisor told Northwestern Mutual that they consider how much taxes might contribute to their retirement savings. Without proper forecasting of these taxes and a strategic tax minimization plan, you will end up with a thinner than expected safety net in retirement.
Work with an expert to see if you can come up with strategies like Roth conversions or tax-gain harvesting to minimize these costs.
With $2 million in retirement savings, you have more risk-taking capacity than the average investor. But that doesn’t necessarily mean you should.
The best approach is generally somewhere between aggressive growth and conservative fixed income. Finding the right balance for you will depend on your age, risk appetite and target return.
Most millionaires seem to understand this. According to investment firm Kohlberg Kravis Roberts, people with liquid assets between $1 million and $30 million typically have 2 percent of their portfolio in cash, 22 percent in alternative assets, 33 percent in fixed income, 15 percent in international stocks and 28 percent in domestic stocks. (3)
Investing in different asset classes and countries stabilizes your multi-million dollar portfolio so that an economic crisis in one country or a correction in a particular market doesn’t completely derail your retirement plans.
Read more: This is the quiet portfolio shift many wealthy investors are making in 2026. Should you consider it too?
As a multi-millionaire, you may be tempted by seemingly exotic asset classes usually reserved for the ultra-rich. Private equity funds, litigation finance, music royalties, private credit funds and hedge funds may contact you to seek an investment from you.
Despite their appealing marketing material, research by quant investor and money manager Richard Ennis suggests that these so-called alternative assets are not all that.
According to Ennis, over the past 16 years, the average alternative asset has outperformed a simple passive index fund composed of stocks and bonds, primarily because of their high fees.
Simply put, you don’t need fancy investment strategies. A time-tested, simple and inexpensive index fund or bond fund should suffice.
If your portfolio exceeds $2 million, your wealth may exceed what you consume in retirement. In other words, you may be leaving money behind for your children and loved ones.
It would be wise to legally document how you want your assets to be distributed when you pass as soon as possible.
A surprisingly large number of wealthy people do not have a will or formal estate plan. When Northwestern Mutual asked its high-net-worth respondents if they had a will, 29% said they didn’t.
With $2 million or more saved, you’re in a strong position for a comfortable retirement. But a few tax or spending mistakes could quickly change that. Avoid these five common pitfalls and your golden years will be much smoother.
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Northwestern Mutual (1), (2); SmartAsset (3).
This article provides information only and should not be construed as advice. Offered without warranty of any kind.
