About 20% of Americans have a pension, while 10% have $1 million or more saved. Combine those two percentages and only 2% of the population has both, leaving them in a unique situation when it comes to retirement planning.
If you are in the 2% Club, congratulations! You’ve done the hard work and saved diligently. And because you’ve done so, you need a tailored strategy to protect and enjoy the wealth you’ve earned.
If you are looking for more information beyond this article, then you can request a free copy of my book The 2% Club.
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Kiplinger’s Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.
Meet the 2% Club: Midwestern values and millionaire discipline
At Peak Retirement Planning, we call our clients Midwestern Millionaires. This title is not just about geography but also about values.
We work with retired public servants and pension holders all across the country, including teachers, police officers, federal employees, nurses, union workers and people who worked at private or public companies that offered pensions.
They have lived a life of service and want to be the best stewards of their wealth and maximize their retirement.
Most of these Midwestern Millionaires share certain traits, including:
- They’re loyal. Many of them stuck with one employer or industry for decades.
- They’re disciplined. Most are diligent savers, amassing more than $1 million on even modest earnings.
- They’re frugal. They are often the best savers (and sometimes the worst spenders).
- They’re hardworking. Many come from middle-class, blue-collar or public service backgrounds.
Being in the 2% Club is a big deal
When you combine your pension with $1 million or more saved (possibly in a TSP, 403(b), 401(k), IRA or other accounts), your financial picture is incredibly strong. You have what many term as “financial freedom.” This means you can have even more purpose with your money in retirement.
Many times, this means we must encourage those in the 2% Club to spend or give more money. Despite being in this great situation, without the right strategy, many of our clients say they have one major concern: taxes. (In case you’re wondering about my thoughts on taxes, you can request a book I wrote called I Hate Taxes.)
Why tax planning is so important for the 2% Club
We often ask clients, “Have you ever been told you will be in a lower tax bracket in retirement?” They usually laugh when they hear that question.
Due to your pension and large amount saved in investments that haven’t been taxed yet, you will likely be in the same or higher tax bracket in retirement.
Knowing taxes will likely be the biggest expense in your retirement means proactive tax planning is more important for someone like you than the rest of the population.
The five pillars of pension planning
To help ensure those of you in the 2% Club do not miss anything, here are the five pillars of pension planning we use for our clients:
Tax planning. This could lead to $100,000-plus in tax savings if done the right way for the 2% Club. Consider strategies such as Roth conversions or a donor-advised fund (DAF) and seek ways to reduce future required minimum distributions (RMDs).
Investment planning. It’s crucial for the 2% Club to know where to grow vs protect wealth and how to keep investments tax-efficient. If you have a pension, you could take on more risk if you desire, since you have your pension to fall back on.
Or you could take on less risk since you do not need the highest returns to be successful.
Income planning. Look at ways to maximize your pension retirement paycheck with smart withdrawal strategies from your investments. It is important to consider tax-efficient income planning, not just market volatility.
Also, explore if you should take your pension as a lump sum or if you should sign up for the survivorship option.
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Health care planning. Many in the 2% Club are worried about overpaying for Medicare Part B and D premiums, also known as the income-related monthly adjustment amount (IRMAA).
It is important to proactively plan now to ensure your income does not force you to overpay for health insurance throughout retirement. Understand that you do not get better coverage by paying more for Medicare.
Estate planning. Ensure your legacy is protected and that wealth transfers smoothly. Many in the 2% Club might worry about the “widow’s penalty,” which forces a surviving spouse to pay nearly double the taxes after a partner passes away.
You also most likely want to pass wealth to your loved ones in the most tax-efficient way.
Are you in the 2% Club?
Many people don’t realize how well they have done until they run the numbers. We talk to a lot of people who have worked for 30-plus years, saved steadily and lived modestly.
After talking with our team, they realize they are not only going to be OK, but that they’re in a position to give more, spend more and leave behind more than they ever imagined.
Our team recently met with a retired firefighter and his wife, a former school administrator, who were unsure if they could retire comfortably. They told me, “We thought we were doing fine, but we had no idea how much better it could be with the right plan.”
Cookie-cutter financial advice might work for the average retiree, but not for the 2% Club.
My recommendation? Work with an adviser who recognizes your unique financial planning situation and deploys strategies that fit your life.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
