Are You Affluent? Understanding How Heritage Capital Defines Wealth

When I speak with people about managing their money, it always surprises me how often they don’t believe they are affluent or considered “high-net-worth,” even if they have $500,000 or more of investable assets. Since this happens fairly often, I decided to write a blog based on the true definition of wealth because it means different things to different people.

Determining wealth is a personal journey that goes far beyond mere numbers. It’s about matching your life goals and values to asset amounts and how the assets are currently being managed.

At Heritage Capital, we understand this intricate balance and are dedicated to guiding people through the complexities of wealth accumulation, preservation, and management with a more personalized, direct approach.

Whether it’s high net worth retirement planning strategies or deciding when the right time to take social security is, the proper guidance can make all the difference in achieving your financial goals.

At the end of the day, financial independence is ultimately about achieving a sense of security and freedom while living life on your terms. The key word is financial independence, enabling you to live your way.

What Does Being Affluent Mean?

There isn’t a one-size-fits-all figure that indicates the real meaning of “affluent.” Usually, it means your family earns at least between $100,000 and $250,000 annually, and you’ve got anywhere from a few hundred thousand to a few million in liquid funds.

It’s a complex and subjective term that depends on several factors:

• What’s considered affluent in a rural area might be considered average in a major city. For instance, a million-dollar home might be regarded as luxurious in one part of the country but below average in another.

• Affluence may also be defined as relative to others. Someone with a net worth of $500,000 might be considered affluent compared to the national median but not compared to the top 1%.

• What someone considers “enough” is highly personal. Someone with a modest income, living debt-free, and pursuing their passions might feel more affluent than someone with a much higher income burdened by debt and chasing a luxurious lifestyle.

Here are some general benchmarks that are often used when thinking about affluence:

• A 2023 Schwab survey showed that Americans, on average, with a net worth of $2.2 million, are considered “wealthy.”

• According to the US Census Bureau, the top 10% of households by net worth was around $778,300.

• The financial industry sometimes uses the term “mass affluent” for individuals with liquid assets between $100,000 and $1 million and an annual income exceeding $75,000.

Remember, these are just rough guidelines, and the true meaning of “affluence” goes far beyond just a dollar amount. Considering individual circumstances and personal values is crucial when evaluating your financial well-being.

Could affluence be a state of mind based on income, expenses, assets, and debt? 

How is High-Net-Worth Defined?

While no universal standard defines high net worth, a high-net-worth individual (HNWI) typically has liquid assets of $1 million or more, excluding their primary residence.

Liquid assets (stocks, bonds, cash equivalents) can be quickly and easily converted into cash without a significant loss in value. Fixed assets like real estate or personal property, which may take time to liquidate, are not factored into the net worth calculation. 

There are four thresholds used for defining high-net-worth individuals:

• High Net Worth: $1 million in liquid assets (HNW) (excluding primary residence)
• Very-high-net-worth individual (VHNWI): $5 million to $30 million
• Ultra-high-net-worth individual (UHNWI): $30 million or more

Net worth factors in your tangible, liquid assets and then subtracts any liabilities you have. So, someone with a high income but significant debt might not be considered HNWI.

Remember, wealth is just one aspect of your life. While having a high net worth can bring certain advantages, focusing on other dimensions of well-being, like health, relationships, and personal fulfillment, is also essential.

Watch our founder, Paul Schatz, discuss five top tax tips.

How to Protect What You’ve Worked So Hard to Achieve

As a successful individual, you’ve worked hard to build your wealth. It’s also very likely that your financial needs are relatively complex, so everyday solutions probably won’t apply – you need a more sophisticated solution.

As an affluent, high-net-worth individual, you need a comprehensive approach that combines investment management, tax planning, legal strategies (wills, trusts), and family governance, all tailored to your specific situation and goals:

• A minimum requirement is a customized investment plan that addresses your financial goals, risk tolerance, and time horizons. This plan should be well-diversified and align with your income and asset protection objectives.

• No one wants to pay more in taxes than we have to. This is where efficient tax strategies can minimize tax liabilities and maximize after-tax investment returns. Taxes are a form of erosion that should be minimized.

• You should use comprehensive estate planning to ensure the smooth transfer of wealth to future generations or nonprofit beneficiaries, involving tools like trusts, wills, and philanthropic strategies to manage estate taxes and maintain control over the distribution of assets.

• Protecting your assets from potential creditors, lawsuits, and other risks is crucial, often involving legal structures like trusts and family limited partnerships to safeguard wealth.

• You may have significant investments in a single stock or another asset type, often from business ownership or executive compensation plans. This necessitates managing your liquidity and the risk of a significant loss.

• Strategic charitable giving not only fulfills philanthropic goals, but you can realize valuable tax benefits that can be an integral part of a wealth management plan.

Get to Know Heritage Capital

Think about this: You could enjoy retirement for 30 years or more – retire in your 60s, and one or both spouses live well into their 90s. That’s why there is little room for mistakes when planning your retirement. Safeguarding your assets is as crucial as making them grow. 

Two questions that we’re frequently asked by new clients are:

1. Have I saved enough to last all of my retirement years?
2. Will my assets and standard of living survive a significant market decline?

That’s precisely why we formed Heritage Capital. 

What drives us is helping members of our community take a balanced approach to wealth management. This requires a sophisticated approach to financial risk and reward that is more complicated than it sounds.

What happens if a significant market decline lasts for a prolonged period? And you are taking distributions from your retirement accounts at the same time. For example, the markets are down 16%, and you are taking 4% distributions. In one year or less, your retirement assets may have declined 20% even though the markets might recover – a scary thought.

There’s a smarter approach. Rather than letting your investments simply ride the market’s waves, we believe in Active Investment Management. That’s why we believe in using a defensive investment approach. As you age, a setback can throw a wrench in your plans. By blending defensive moves with your need for growth to offset distributions and the impact of inflation, you can attempt to keep your losses to a minimum. This approach can help you achieve your long-term financial goals, including later retirement.

For over 35 years, we’ve been guiding our clients who are nearing retirement or are already retired to do just that.

If you’re ready to build an affluent investor retirement plan, connect with us for an introductory call.