Here’s why everything changes once you’ve saved $2M for retirement (and not for the better). Can you protect your riches?

Shifting your perspective from building wealth to protecting it isn’t easy. But the journey could be less treacherous if you avoid these five common money traps that high-net-worth individuals sometimes fall into.

1. Not knowing your true lifestyle budget

If you follow the 4% rule, $2 million in retirement savings would give you $80,000 a year, adjusted for inflation. That could either be too much or too little, depending on where you live and how much you spend.

Lifestyle inflation — where your spending habits change with the size of your portfolio and paycheck — is a real risk. It’s perhaps one of the reasons why only 32% of American millionaires, according to Northwestern Mutual, consider themselves “wealthy.” (2)

Of these millionaires, 70% who do not work with a financial advisor said they know how much money they need to retire comfortably. In other words, many high-net-worth 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 craft a robust budget that you can stick to easily. While $2 million sounds like a lot, it can quickly disappear and might not be enough for everyone.

2. Tax time bombs in IRA or 401(k)

If much 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 making withdrawals in retirement.

Less than half (49%) of millionaires without a financial advisor told Northwestern Mutual they consider how much taxes could eat into their retirement savings. Without a proper forecast of these taxes and a strategic plan to minimize taxes, you end up with a thinner-than-expected safety net in retirement.

Work with an expert to see if you can pull off strategies such as Roth conversions or tax gain harvesting to minimize these costs.

3. Wrong asset allocation

With $2 million in retirement savings, you have more capacity to take risks than the average investor. But that doesn’t necessarily mean you should.

The best approach is generally somewhere between aggressive growth and conservative fixed income. Finding the right balance for you will depend on your age, risk appetite and target returns.

Most millionaires seem to understand this. According to investment firm Kohlberg Kravis Roberts, people with between $1 million and $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 across different asset classes and countries stabilizes your multi-million-dollar portfolio so that an economic crisis in a country or a correction in any specific market doesn’t derail your retirement plans completely.

4. Exotic assets

As a multi-millionaire, you may be tempted by seemingly exotic asset classes typically reserved for the ultra-wealthy. Private equity funds, litigation finance, music royalties, private credit funds and hedge funds might reach out to seek some investment from you.

Despite their eye-catching marketing material, research by quant investor and money manager Richard Ennis suggests that these so-called alternative assets aren’t all that.