Inflation does a number on your wealth. Time was that having $1 million meant you were rich. Lewis Walker, a financial planning and investment strategist at Capital Insight Group in Peachtree Corners, Ga., explains what you can do to combat a wealth shortfall:
A report from Boston Consulting Group focused on the growing global wealth gap. Worldwide roughly 18 million households control $1 million or more in wealth, representing the top 1% of the global population and holding 45% of the worlds $166.5 trillion in wealth.
If you are a current or aspiring member of the One Percent Club, what might this mean for you? Assume that your $1 million in wealth (now or future) consists of financial assets (stocks, bonds, cash, other investments), investment real estate, a business.
Regulators define an accredited investor as one having $1 million in investable assets, excluding personal residence, or had income of at least $200,000 each year for the last two years ($300,000 combined income if married) with expectations of similar amounts going forward.
Lets put $1 million in perspective. If you are about to retire, or are retired, and want to harvest the fruits of your labors, if you pull 5% of your $1 million stash annually for cash flow, you have $50,000 per year, or $4,167 per month pre-tax.
If the funds come from a qualified retirement plan a traditional IRA, 401(k), etc. — you must pull $62,500 from your nest egg (6.25%) to have $4,167 net to spend monthly at an average 20% federal and state tax bracket.
With interest rates still low on a historical basis, how much risk do you need to take in your portfolio to sustain your lifestyle and the financial independence of you and a spouse over a potentially 20 to 30 year lifespan? If we define risk as volatility in a diversified portfolio, how much risk is required to meet goals? How do you build a portfolio so as not to run out of money and be dependent on your kids or Medicaid?