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If you have more money, you have more retirement options. High-income earners have substantial resources, allowing them to make massive gains and suffer crushing losses. However, practical strategies and prudent financial decisions can help you retire as a multimillionaire. High-income earners often have different retirement needs than others. Here’s how much high-income earners save and how to get your savings on track.
If you’re falling behind on your retirement savings goals, a financial advisor can help you create a financial plan.
How much have high-income earners saved for retirement?
A high-income earner is an individual or household that earns a substantial amount of money relative to the average income in the country. In the United States, high-income earners earn more than $500,000, placing them in the top 1% of households in the country. For comparison, the median household income in the United States in 2022 was $74,580. Therefore, you would need to earn more than seven times the typical household income to be a high-income earner.
While retirement savings aren’t a one-size-fits-all solution, higher-income earners typically save more because of their financial capabilities. Specifically, they save $2.68 million between the ages of 65 and 70.
Remember that a high income doesn’t automatically mean you have a secure retirement fund. Proper financial planning, budgeting and investing are essential for everyone, regardless of income level, to ensure a comfortable retirement. Additionally, factors such as lifestyle choices, debt levels and unexpected expenses can all impact how much an individual or household can save for retirement.
Average retirement savings by age of high-income earners
High-income earners start with large retirement savings and accumulate more over decades.
Let’s see how much each age group has saved for retirement in 2022. The data comes from the Federal Reserve Board and is based on the average amount for each age group:
According to the data, retirement savers under 35 saved nearly a tenth as much as those aged 75 and over, and nearly a third as much as those aged 35 to 44. Retirement savers aged 65 to 74 saved the most, more than 12 times as much as those under 35.
A financial advisor can help you create a plan for your income and net worth. Find a financial advisor today.
Where are your retirement savings?
Evaluating your current retirement savings is a crucial but difficult task as you move toward your senior years. A detailed retirement plan incorporates your monthly budget, savings goals and lifestyle, among other factors.
For example, you might decide to save specific amounts when you reach a certain age, such as three times your salary by age 40. On the other hand, you might set a savings goal, such as $3 million by age 65.
Additionally, your savings method is fundamental to your plan. You can save 10% of your salary each year or establish a strict monthly budget and invest as much as possible in various assets.
Remember that your investment strategy is just as important as the money you set aside. For example, choosing low-fee investments, maxing out your accounts (401(k) and IRA), and automating savings will help grow your capital over time. Plus, minimizing your debt will give you more money to put toward retirement.
The essence of retirement is setting specific savings goals and taking a disciplined approach to achieving them. That said, financial obstacles (divorce, children’s education, etc.) and the temptation to spend more in the present can derail anyone’s retirement savings plan. Therefore, consulting a financial expert could help you create and execute your plan.
How to get your savings back on track
High-income earners have unique opportunities and challenges when it comes to retirement planning. Here are four common strategies to help you get your retirement savings on track:
Maximize your contributions to tax-advantaged accounts. Contribute the maximum amount allowed to your tax-advantaged retirement accounts. In 2023, the maximum annual contribution for your 401(k) is $22,500 ($23,000 in 2024) and $6,500 for your IRA ($7,000 in 2024). Additionally, catch-up contributions are available for savers age 50 or older, increasing the maximum contributions by $7,500 for 401(k)s and $1,000 for IRAs in 2023 and 2024.
Consider non-qualified deferred compensation plans. Nonqualified deferred compensation (NQDC) plans have no contribution limits and more flexible withdrawal rules. These plans are available only to management positions often held by high-income earners and can offer these employees a unique tax advantage by allowing them to set aside significant portions of their income for retirement beyond the limits of a 401(k).
Expand your investment types. Open a brokerage account, buy real estate, or become a shareholder in a small business. These alternatives could help you diversify your portfolio and mitigate risk. Keep in mind that each asset has specific tax implications.
Avoid lifestyle inflation. This will involve making intentional financial choices to ensure your expenses don’t increase with your income. Start by setting clear financial goals, both short- and long-term, to give you a clear idea of where you want to go. Create a budget to track your income and expenses, distinguishing between essentials and discretionary spending. Automate your savings and investments so that a portion of your income is consistently allocated to your financial goals. Then, review and adjust your budget to adapt it to your changing financial situation and goals.
You may also want to consider speaking to a financial advisor if you would like professional advice tailored to your situation and goals.
Conclusion
High-income earners can save a lot of money. But they’ll need to take effective steps to secure their financial future. Key steps include maximizing contributions to tax-advantaged accounts, reviewing non-qualified deferred compensation plans and diversifying investments.
Tips for High-Income Earners Saving for Retirement
A comfortable retirement isn’t automatic, no matter your income level. Fortunately, a financial advisor can help you navigate challenges specific to your retirement needs. SmartAsset’s free tool connects you with up to three vetted financial advisors who serve your area, and you can enjoy a free introductory call with your matching advisors to decide which one is best for you. If you’re ready to find an advisor who can help you reach your financial goals, get started today.
Taxes and lifestyle can drain your finances and reduce your ability to save. Here are the areas where high-income earners lose the most and how to fix them.
Keep an emergency fund on hand in case you have unexpected expenses. An emergency fund should be liquid, in an account that isn’t exposed to major fluctuations like the stock market. The tradeoff is that the value of cash can be eroded by inflation. But a high-interest account lets you earn compound interest. Compare savings accounts from these banks.
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