What to Do With $10 Million+ in Retirement: Spend It, Gift It, or Give It Away

Speaker 1: (00:00)
Have you ever wondered how to spend your money as a high net worth individual? It seems like every time high net worth planning comes up, you always hear about things like grats, gruts, cuperts, slats, dafts, eyelets, private equity, business succession. But how often are you really thinking and talking about how to actually use your money as a high net worth individual? If you're between 10 million and 25 million in investment assets or net worth, that's exactly what we're gonna talk about today. How should a high net worth individual spend or use their money? Stay tuned.

Speaker 1: (00:44)
Hello everyone and welcome to the Retirement Power Hour. I'm Joe Allaria. This is episode 46, and today we're talking about how should you as a high net worth individual spend your money, how should you use your money? And again, what is a high net worth individual? Today we're talking about if you've got 10 million to 25 million or more, how should you spend your money? So are we gonna tell you how to spend your money today? Um, not, not necessarily, but we're gonna make you think about how you should use your money and how you should spend your money. Because if you don't, a lot of times people don't think about the consequences of what will happen if you don't have a plan in place. And yes, things like all the, the letters that I mentioned earlier, the grats and the slats and the islets, those things are all extremely important.

Speaker 1: (01:34)
But today we're gonna back up and we're gonna talk about, you know, what do you really want your money to do either for you or your family or a charitable organization? The implementation comes next, but too often high net worth individuals will jump to implementation. They're trying to solve an estate tax problem. They're working with attorneys, they're working with accountants. They put these things in place, these estate documents, these vehicles, and all the while, I don't know that they ever really sit down and talk about what do we want our money to accomplish? So let's talk about what are your options? Well, option one, you do nothing or you continue to invest your money as, as many high net worth individuals do. What does that look like? Well, there's this thing in the back of everyone's mind that I need to have a certain amount of money to take care of myself.

Speaker 1: (02:26)
Now, how much money would that be? Well, according to a study done online of high net worth individuals, an average annual living expense could be somewhere between 250 and $400,000 before charitable gifts, but just to cover your living expenses. And so if you, if you do the math on that and you think, well, how much money do I need to cover that need? And then there's this thing in the back of our minds that when we get to retirement, we think, what if I have a long-term care stay? And yes, if you have no long-term care insurance and your plan is to pay out of pocket for any potential long-term care costs, now how much would that add up to? Because it's not gonna be $10 million most likely, it's most likely not gonna be $20 million. Well, again, if you do the math on it, let's just say you might need $2 million in the future, 20 years down the road, you could need a couple million dollars to cover a long-term care stay.

Speaker 1: (03:24)
We're gonna have future episodes here shortly to talk about long-term care and what the averages are, but the average stay is, is not 10, 12, 15 years. It's, it's more like three years or less on average. And of course, they are expensive, but if you pay $10,000 a month today, that's $120,000 a year. For three years, you can do the math. It generally doesn't add up to a, a justification to hold on to millions upon millions upon millions of dollars. So if we take our living expenses and we take our potential long-term care expenses and we assume you're gonna get, uh, an average social security benefit for, for higher net worth individuals, let's just say $85,000, done some quick math, that tells me, uh, and you can check your own numbers on this because people have other income sources. They might have passive income coming in, they might have dividends or real estate rents coming in, business in- income still coming in.

Speaker 1: (04:23)
There could be various forms of income that are still happening when you're retired. But if you have none of that and all you have is social security and you're gonna spend 250 to $400,000 a year and try to set some money aside for long-term care in the future, you might need six to 10 million dollars. So if you do need six to 10 million dollars for you, but you have 15 million, 25 million, what are you gonna do with that other money? And so we need to think through that. A- and again, you could be on the lower end of that expense spectrum and you could have other income coming in. So that might mean that you don't need six to 10 million, you might even need less than six to 10 million. But if you think about it, if you're 10 to 25 million, where is your money going to go?

Speaker 1: (05:06)
Do you really want your kids inheriting five million, 10 million, 20 million dollars down the road? If we do nothing and you're, you're at 10 to 25 million today and your assets compound and they turn into 30 or 40, we just have to think about what are my kids going to inherit if you even have kids? Maybe you don't even have kids. Where will your money go? And is that really what you want to happen? Some things to think about there. Are you okay not seeing the impact of where your money goes? So if you, if all of your money passes at death, you're not gonna be here. Are you okay with that? Is that, is that something that, is that how you want that to play out or would you rather see the impact while you're here? Also, there's drawbacks to let's just get my, my total net worth as big as I possibly can until I die.

Speaker 1: (06:00)
And the biggest drawback there is the potential for estate tax, both federally and at the state level. Federally, we're looking at $15 million per person. You've got portability that can apply, but I'm here in the state of Illinois. We have $4 million estate tax. Check out our next episode. We're gonna be talking exclusively about estate tax in Illinois, but we've got a $4 million personal exemption for estate tax in Illinois. I've got a list of 12 states plus Washington DC that have some form of estate tax with several of those lifetime exemption amounts starting at four million or below. And that means that if you exceed those exemption amounts, you're triggering estate tax on the state level. I'm talking about states like Oregon, one million. Massachusetts, three million. Rhode Island, 1.84 million. Minnesota, three million. Washington, three million. Illinois again, four million. If you exceed those amounts, then you're triggering some form of estate tax.

Speaker 1: (07:01)
So let me pause for a second and remind everyone that as I'm talking through estate tax and estate planning, be sure you talk with your CPA or with an estate planning attorney for your specific situation and to obviously plan and implement anything that might, might be needed for you. I'm simply here educating you on what to think about in, in some of these areas. So let's go back again. Drawbacks, you just wanna accumulate and save and allow your investments to compound and grow. And basically what I see in real practice is when people don't have a plan, that's your plan, is just make my estate as big as possible. It may not feel like that's your plan, but we're just so used to investing, take what we need, and the rest sits in there to grow. And that's great, but maybe to a certain point, maybe when you get beyond that point, it might be beneficial for you to go through this exercise.

Speaker 1: (07:54)
It's a very difficult exercise to switch out of that mode of, you know what? You have more than enough. Let's think about how we can potentially even be a little radical with how to use our money to drive our own fulfillment, to drive fun and enjoyment in retirement, to really enjoy and, and to think about enjoying our money a little bit differently. So let's talk about some of those options. Of course you've got option number two is spend more. So the, we're talking about experiences, cars, boats, second homes. Now, I can just share with you from personal experience, conversations I've had, when you have more things, also means more maintenance. So more things, more maintenance. You got two homes, you got two homes to take care of. You got a boat, there's boat maintenance. You got five cars, that's five cars you gotta maintain. So it's not always more things equals more fun.

Speaker 1: (08:46)
You've got a bunch of land. I can speak from not having a bunch of land, just having a little bit of land. The more land you have, the more maintenance you have on that land. And if you're not doing it yourself, you're probably paying someone to do it. If you have three homes or four homes, you're probably paying a property management company to go take care of those homes. So there's benefits and there's drawbacks to that, of course. More things doesn't always mean more happiness, that's for sure.You might travel more. Someone say, someone migh say, "Well, we really like to travel. We don't wanna spend all of our money because we wanna be able to travel." Okay. Well, first of all, that travel expense is included in the living expenses that I already gave before. But even looking at some of these studies, according to luxury travel advisors, the study that they did, the top 1% of American households, which means you got $600,000 or more in income and $13 million or more in net worth.

Speaker 1: (09:40)
The top 1% travels on average six times per year and spends about $12,400 per trip. So that's a, that's approximately $75,000 per year in travel. So again, do the math for your own situation, but you can account for $400,000 of regular living expenses. You can go six times a year and have some pretty amazing trips. I wouldn't even wanna go six times a year, I don't think, but, you know, maybe a few times, maybe you spend a little bit more than 12,000, but you could, you could put $75,000 a year aside. And again, we still have a lot left over at the end of the day. So you can spend more, certainly people do that. In my experience, I've seen that doesn't always lead to more happiness or more fulfillment. Sometimes it leads to more headaches. I encouraged one client, uh, one time who was on track to leave their kids more money than they wanted to, and I had encouraged her and her husband to spend a little bit more money.

Speaker 1: (10:40)
And she listened and she did. And she came back the next meeting and she shared with me about a meal that they had and how much she spent on the meal more than she would've. And she told me it about made me sick. And I said, "Well, well, don't spend it if it's not gonna make you happier or more fulfilled or bring you some sort of joy because if you've done a good job saving and you're used to paying this much for a meal and all of a sudden you're paying this much, it may not bring you enjoyment, it might bring you a little nausea. So if it, if it makes you happier, if you enjoy it, do it. If not, don't do it." So you can do nothing. You can spend more. And then option three, you can think about gifting to your family and to your friends.

Speaker 1: (11:23)
Uh, really a lot of people stop when they, they think about their children and then they stop thinking about gifting, which is fine. We use gifting a lot in estate planning strategies to reduce your estate, to, to gift away assets each year to your children in most cases or your grandchildren to keep our estate down so we're not paying a lot of estate tax. But again, if you're 10 million, 25 million, maybe you don't have kids. Uh, maybe, maybe you're at 25 million and you don't want your kids to get 15 million a piece 10 or 20 years down the road. And I've seen this from experience. Well, think out, maybe we can think outside the box in, in that regard. It's a blessing to be able to do so. But do you have extended family members that could benefit from some of what you've built?

Speaker 1: (12:11)
Could you make a difference in their life? Could you donate anonymously to someone who's fallen on hard times and, you know, find a legitimate, you know, GoFundMe for someone in your community and donate a, a, an amount to them that would be life changing or help them through a hard time? You might go to a restaurant and, and drop 100 or 200 every single time you go out or you might leave a thousand dollar tip. Now I can tell you, when you do things like that, you're gonna experience something new, uh, and that's fun. When you do that, when you provide that amount of shock and awe and, and you give someone, especially someone who's fallen on hard times or maybe, maybe $500, maybe $100, but maybe $500 and would, would cause such a positive difference in their life, maybe it's a couple thousand dollars, you might create a budget of $100,000 a year for anonymous gifting to random strangers who have fallen on hard times or who you encounter in what, in your day-to-day or week-to-week activities.

Speaker 1: (13:12)
And again, I can tell you, if you do that, you're gonna experience. It's fun. It's fun to see the difference that it makes in those individuals' lives and how grateful they are because there's a lot of really good people out there who are probably, you know, who are struggling financially and are having a hard time making ends meet. You might have a niece or a nephew who's a hard worker who's trying to start their life and, and buy a first house or they're having a wedding and, and money is, is tight. There's just so many endless options that you can look at when it comes to gifting. And, you know, one of the reason that it's fun, you get to see the, the person or the people enjoy what you've given. You get to see them in some cases. You get to help people maybe get through a hard time.

Speaker 1: (13:53)
You get to broaden the impact outside of your family if you wanted to do that. So again, it's fun. There's no tax benefit from an income tax standpoint, but you are gonna get benefits on the estate tax front. You are gifting, you're getting money out of your estate. And so there is actually a, a tax benefit, but you don't reduce your income when you give the gifts, but you reduce your estate. A good thing for down the road. So that's option three, giving family, friends, kids, grandkids, whatever it may be. Option four, think about donating maybe to a charity, to a charitable organization. You've got so many good ones out there. You know, of course, we hear about the big ones, the American Red Cross, United Way, and nothing against those organizations. Uh, if they receive 25,000, I'm sure they are thrilled to receive that.

Speaker 1: (14:40)
But I know a lot of local charities here in my area, food pantries. I've got a family member that works closely with the food pantry, and their entire budget is about $25,000 a year. So if they receive a $1,000 gift, that's huge for them. That is, that is enormous, let alone a $5,000 or a $10,000 gift. The amount of impact that you could have by being aggressive, being, being, um, liberal in your giving to charities, uh, if you, again, if your plan is, "I don't want my kids to inherit 15 million apiece. I just don't want that. I've, I've set my money aside to take care of my needs, to take care of maybe a rainy day in the future for long-term care, whatever it may be, that's all taken care of. My kids are gonna inherit plenty. What am I gonna do with the rest?" This is just another option of giving to charities.

Speaker 1: (15:38)
Now, there's, there's ways that you can give to charities, absolutely, that are gonna amplify those tax benefits. And that's where things like donor advised funds comes in, gifting appreciated shares of securities. So sure, you need a team of professionals to, to walk you through that, but it would first benefit you to just have a conversation with your spouse or think about it yourself, "What do I really want my money to do? What's important to me?" We talked about it's fun to benefit, uh, individuals, to give to individuals and to see them enjoy it and to see the shock and the awe on their face. That's fun. To give to charities, especially smaller organizations who are doing really good work at the local level, it's fulfilling. It makes you feel good. It's a, it's a cause you care about. You know they don't have money just flowing in and you're able to really make a difference.

Speaker 1: (16:30)
That's fulfilling. When you give to charities, you have the opportunity to leave a legacy to last generations, you know? So some people on the higher end of the net worth scale, i- if you really have one cause and you wanna go all in on it, now you're talking about, again, leaving a legacy for generations. Shoot, they may name a, a building after you or name a park after you or something like that if that's important to you. But at the local level, you have such an opportunity and even at the national level with some of these larger organizations. So that's giving a charity, but it doesn't have to be a one-time thing. You know, that's where we talked about donor advised funds or, or DAFs, donor advised funds earlier. And if you do have children, donor advised funds give you the opportunity to set up successor advisors is what it's called, a successor advisor.

Speaker 1: (17:23)
Your children, you can put money in a donor advised fund that has to be given to charity. It can't be clawed back, but you can put your children in charge of giving that money or recommending grants on that money after you're gone. So you're recommending grants to certain charities while you're here, when you pass away, now you're instilling in them the same values to make a difference that, that you started when you were living. So this certainly isn't an exhaustive list, but this comes from conversations that I've had recently, multiple conversations, and it really comes down to this. When you get to a certain point and you're confident and you've mapped out your plan and you know that you have enough, you gotta ask yourself, "What is gonna happen to the rest of my money? And is that what I really want to happen?" And if you keep your head in the sand and, and do nothing, you're, you're committing, you're subscribing to a plan, and that is just build and accumulate as much as I can until the point that I pass away.

Speaker 1: (18:27)
Maybe that's what you want. I know from conversations, it's not actually what a lot of people want. It's not actually what a lot of, of our, of our high net worth clients really want. They'd rather make some sort of difference now or do things that maybe they've been holding back. They'd rather do that now and see the fruits of those things rather than wait until they can't see the fruits of their gifts or their actions later when they're not here. So again, if that's you, or maybe it's not, you maybe have other questions, you can contact us by going to retirementpowerhourpodcast.com. That's retirementpowerhourpodcast.com. You can click work with me and we're happy to have this conversation with you and, and help you think about these things. What happens after this conversation? Well, then you're gonna have to talk about implementation once you decide what you wanna do.

Speaker 1: (19:19)
"Hey, I want my kids to have the money. "Okay, well, there's a way to do that. I want the, a charity to have the money. There, there's a way to do that. We don't wanna pay excess tax. We don't wanna mess up your annual or lifetime gift exemption amounts. So there's things to do after you make those important decisions and we can help you with that. We're not attorneys. We're not accountants. We encourage you to seek individual advice with a CPA or with an estate planning attorney. If you don't have one, get one. If you need one, uh, again, contact us. We can connect you with fabulous professionals in those areas. We can help you as well to talk through some things to consider where your investments are concerned, whether, where your retirement plan is concerned, and where all of these things are concerned. So this was more of a, uh, big picture, uh, a little bit of a fun episode just to help you think, help you trigger some thoughts on what you can do and how to spend your money.

Speaker 1: (20:12)
I would never tell you exactly what you should do and how you should spend your money. You've earned it, you've worked hard for it. And so now it's, it's your decision. Hopefully this helped. Uh, with that, I wanna thank everyone for watching. Stay tuned again to future episodes. We'll be back next time on the Retirement Power Hour Podcast where we help listeners invest wiser and retire better. Take care.

Speaker 2: (20:34)
Thank you for listening to the Retirement Power Hour Podcast. All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an investment advisor representative of Carson Allaria Wealth Management, a registered investment advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, but Carson Allaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.