As your net worth grows, so do the opportunities to refine your financial strategies. While no one-size-fits-all approach exists, certain planning recommendations become increasingly relevant as you reach new wealth milestones. It’s easy to stick with what’s worked in the past, but updating your strategy ensures that your plan remains comprehensive and aligned with your evolving goals. The right moves will also depend on your age, income, and personal circumstances.
Here are key strategies, albeit not a complete list, to consider as you hit different net worth levels during the asset accumulation phase of your life:
Net Worth: Under $250,000
At this stage, you’re laying the groundwork for your financial future. Building strong habits now will set the stage for long-term success. Your focus should be on saving, investing, and living within your means.
- Establish a savings goal: Aim to save 20% of your gross income to start. While 10% is commonly recommended, we find it is often not enough to adequately fund retirement to meet your current standard of living.
- Establish an emergency fund: Start by saving enough to cover three to six months’ worth of expenses, providing a financial cushion for unexpected events.
- Max out your company match: If your employer offers a retirement plan with matching contributions, make sure to take full advantage of it. This is essentially free money that can help jumpstart your retirement savings.
- Fund Roth IRA & HSA: Look to begin funding a Roth IRA and Health Savings Account (HSA), if you qualify.
- Harness the power of compound interest: The power of compound interest cannot be overstated! The earlier you start saving, the more your money can grow exponentially over time. At this stage, while you’re likely managing everything on your own, focus on diversifying your investments and maximizing your savings to make the most of this powerful effect.
Net Worth: $250,000–$1,000,000
Now, you’re in a dynamic phase where family and financial growth go hand in hand. At this stage, whether you’re balancing homeownership, expanding your family, or continuing to build wealth, thoughtful planning is essential to achieving long-term success.
- Maintain disciplined saving habits: Continue contributing to your retirement accounts, focusing on either pre-tax or Roth contributions depending on your income and long-term tax strategy. The right retirement plan can offer significant tax advantages that align with your goals.
- Protect your family with insurance: If you’re married or have dependents, consider purchasing term life insurance while premiums are lower. This provides financial security by replacing your income in the event of your passing. Additionally, if you’re the primary earner, disability insurance is crucial to safeguarding your income in case of an unexpected illness or accident.
- Review homeownership and estate planning decisions: If you’re considering purchasing a home, carefully evaluate factors like the down payment, affordability, and mortgage terms. Homeownership introduces new legal considerations, so start your estate planning by determining how your home should be titled.
- Optimize investment locations: As your wealth grows, focus on placing investments in the most tax-efficient accounts—whether taxable, tax-deferred, or tax-free—to maximize your returns over time.
- Build your financial team: As your finances become more complex, it’s wise to work with professionals who can guide your strategy. Consulting a Certified Financial Planner™ professional can help you navigate key decisions, and as your tax situation evolves, adding a Certified Public Accountant (CPA) can ensure your plan remains tax-efficient.
Net Worth: $1,000,000–$5,000,000
You’ve hit a significant milestone! As your net worth climbs, the importance of thoughtful planning cannot be overstated. This is the time to refine your strategies and protect your assets.
- Build custom financial plan and long-term projections: At this stage, custom financial planning becomes essential. A personalized long-term financial projection can help you anticipate future needs, plan for major life events, and ensure your assets are managed efficiently for the long haul. Regularly updating these projections will allow you to adjust your strategies as life evolves, ensuring that you stay on track to meet your long-term goals. Collaborating with a CFP® professional ensures your plan is aligned with your evolving needs and aspirations.
- Contribute to a balanced mix of accounts: At this point you’re going to want to make sure you’ve been funding different types of retirement and investment accounts (taxable, tax-deferred and tax-free). If you find yourself overconcentrated in terms of your account type (e.g., all pre-tax retirement accounts), there are strategies to alleviate the taxation issues that will develop in the future.
- Review estate planning and insurance: As your wealth grows, revisit your estate plan and adjust your life insurance coverage to ensure your assets and family are fully protected. Once your net worth surpasses $1,000,000, consider purchasing umbrella insurance. This inexpensive coverage protects your assets from liability claims that exceed the limits of your standard homeowner’s or auto insurance.
- Start Social Security planning: High-income earners often underestimate the long-term value of Social Security. As you approach retirement, consider how and when to claim Social Security. The strategies are unique and highly customizable. However generally, delaying your benefits can substantially increase your overall retirement income. Whelan Financial offers complimentary Social Security analyses to help you make informed decisions.
- Develop withdrawal strategies: Plan how to draw from your retirement accounts to maximize your income while minimizing taxes. Working with a CFP® professional can help you optimize your withdrawal strategies.
Net Worth: $5,000,000–$13,000,000
You’ve reached a higher level of wealth, where advanced strategies become essential! Now is the time to think seriously about legacy and charitable giving, ensuring your wealth works for you and your values.
- Explore Direct Indexing: This tax-efficient investment strategy can help maximize your legacy and is particularly valuable if you anticipate large capital gains from selling a business or property. You can learn more about this strategy here.
- Begin legacy planning: As your net worth grows, consider how you want to pass on your wealth to future generations. This planning may include annual gifts to family members, setting up trusts or other vehicles to manage your estate effectively.
- Review your insurance coverage: As your wealth continues to expand, ensure that your various insurance coverages are sufficient to protect your assets, your income and your family.
- Prepare for estate planning: With the current estate tax exemption set to decrease in the future, now is the time to strategize how to preserve wealth for your heirs and potentially incorporate charitable giving into your plans. Be sure to see your estate planning attorney.
- Monitor financial plan: Monitor your financial plan with your Certified Financial Planner™ professional and modify it as necessary.
Net Worth: $13,000,000+
When you have amassed a net worth of this size, it is time to take advantage of even more complex estate planning and estate reduction strategies focused on maximizing the amount of assets you’re able to pass on to your heirs and/or charities.
- Leverage advanced estate planning: Focus on complex estate reduction strategies to maximize the amount of assets you can pass on to your heirs or charities. Consider structuring businesses and illiquid investments to take advantage of estate discounts, which can help reduce the taxable portion of your estate.
- Plan for business succession: If you own a business, ensure you have a well-thought-out succession plan to protect its future and your financial legacy. Also, direct indexing may be an excellent strategy to reduce capital gains if you plan to sell a business.
- Consider Roth Conversions and ILITs: Strategically execute large Roth Conversions and/or fund Irrevocable Life Insurance Trusts (ILITs) to reduce the impact of estate taxes.
- Explore charitable opportunities: For those interested in philanthropy, a charitable remainder trust, or donor advised fund could be useful. For significant amounts of net worth, a Family Foundation may also be worth exploring.
- Coordinate your financial team: At this point it is important that all your financial professionals are working seamlessly together to execute your financial objectives. At Whelan Financial we offer Service 360 meetings where we bring together our client’s CPA, Estate Planning Attorney, Insurance Agent, etc. into one room to review plans, share ideas and discuss how best to serve our client’s needs.
Your financial strategy should evolve alongside your growing net worth. As each new milestone brings greater complexity, having a team of professionals by your side becomes increasingly important. At Whelan Financial, we’re here to help you build a comprehensive, tax-efficient plan that evolves with you. Contact us today for a complimentary consultation and discover how we can help you achieve your financial goals.
Authored by Stephen C. Detweiler, CFP®
Preliminary language, parameters, and edits for this blog were crafted by the Whelan Financial team and Stephen C. Detweiler, with the help of generative AI.
