If you have $2 million in retirement savings, congratulations. That’s well above the $1.26 million that Americans, according to Northwestern Mutual, estimate they need to retire comfortably. (1)
At this point, you’ve probably overcome the challenge of saving enough. From now on, your next mission is heritage preservation. Higher taxes and poor lifestyle choices can quickly erode what seems like a huge treasure.
Moving from wealth creation to wealth protection is not easy. But the journey might be less perilous if you avoid these five common financial traps that wealthy people sometimes fall into.
If you follow the 4% rule, $2 million in retirement savings would give you $80,000 per year, adjusted for inflation. This may be too much or not enough, depending on where you live and how much you spend.
Lifestyle inflation – where your spending habits change based on the size of your wallet and your salary – is a real risk. This may be one reason why only 32 percent of American millionaires, according to Northwestern Mutual, consider themselves “rich.” (2)
Of those millionaires, 70% who don’t work with a financial advisor said they know how much money they need to retire comfortably. In other words, many wealthy individuals haven’t taken the time to plan their retirement budget and lifestyle needs.
Don’t fall into the same trap. Consider hiring a financial advisor to help you develop a solid budget that you can easily stick to. Even though $2 million seems like a lot, it can quickly disappear 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 withdrawals made in retirement.
Less than half (49%) of millionaires without a financial advisor told Northwestern Mutual they are considering how much taxes could eat into their retirement savings. Without proper forecasting of these taxes and a strategic plan to minimize taxes, you end up with a thinner safety net than expected in retirement.
Work with an expert to see if you can implement strategies like Roth conversions or tax-gain harvesting to minimize these costs.
With $2 million in retirement savings, you have a greater ability to take risks than the average investor. But that doesn’t necessarily mean you should.
The best approach is generally between aggressive growth and conservative fixed income. Finding the right balance for you will depend on your age, risk appetite and return goals.
Most millionaires seem to understand this. According to investment firm Kohlberg Kravis Roberts, people with $1 million to $30 million in liquid assets typically have 2% of their portfolio in cash, 22% in alternative assets, 33% in fixed income, 15% in international stocks and 28% in domestic stocks. (3)
Investing in different asset classes and countries stabilizes your multimillion-dollar portfolio so that an economic crisis in one country or a correction in a specific 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 think about this too?
As a multi-millionaire, you might be tempted by seemingly exotic asset classes typically reserved for the ultra-rich. Private equity funds, litigation finance, music royalties, private credit funds and hedge funds may contact you to seek investment.
Despite their eye-catching marketing materials, research by quantitative investor and fund 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 underperformed a simple passive index fund of stocks and bonds, primarily due to their high fees.
Simply put, you don’t need sophisticated investment strategies. A proven, simple, and inexpensive index fund or bond fund should suffice.
If your portfolio exceeds $2 million, your wealth could exceed what you consume in retirement. In other words, you could leave money to your children and loved ones.
It would be wise to legally document how you want your assets distributed upon your death as soon as possible.
A surprisingly large number of wealthy individuals have neither a will nor a formal estate plan. When Northwestern Mutual asked its high-net-worth respondents if they had a will, 29% said no.
With $2 million or more saved, you’re well-positioned to enjoy a comfortable retirement. But a few tax or spending mistakes could quickly change the situation. Avoid these five common pitfalls and your golden years will be much smoother.
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North-West Mutual (1), (2); Smart asset (3).
This article provides information only and should not be considered advice. It is provided without warranty of any kind.
