A recession isn’t good for anyone – including the rich. Just because they have a lot of money doesn’t mean they can maintain their current lifestyle for years to come. This idea, which has plagued the minds of America’s affluent, is leading to a reduction in lifestyle and a change in retirement planning.

According to the Affluent Boomer Survey, 40% of wealthy 60-year-olds are downsizing their lifestyle. Better kiss goodbye to that vintage wine and that new Ferrari. If that’s not pessimistic enough, millionaires have been staring glumly at their investment future since 2001.

Rich people are worried. And what do they do? Nearly 70% say that they are planning to cut back on stocks and mutual funds in order to invest more conservatively – which is exactly what they shouldn’t do. Many of them will spend at least 30 years in retirement; if they want to keep up with inflation, they will need higher returns. Conservative instruments just aren’t going to generate the level of income they require.

Another pessimistic trend among the rich is the drop in retiree health benefits. Ten years ago, about 70% of large firms provided such benefits. Today, the number has dropped to 30%.

The mix of a bearish market and a decline in health benefits are food for financial insecurity. Knowledge of what to do in this situation – and learning to break away from the traditional financial response – is imperative. Longevity risk is a growing concern, and soon-to-be retirees need to find a way to make enough income to ride out their retirement.

Protection against longevity risk is an essential element of retirement planning. Some people choose to switch to high-yielding bonds; others to stocks and mutual funds. The next hottest thing will be longevity annuities, which guarantees a steady stream of income.

by Mary Wu

DeHayes Consulting Group