You won’t believe how much high earners save for retirement

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If you have more money, you have more retirement options. High earners have substantial resources at their disposal, presenting the potential for massive gains and crushing losses. However, practical strategies and careful financial decisions can help you retire as a multimillionaire. High earners often have different retirement needs than others. Here’s how much high 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 high earners have saved for retirement

A high earner is an individual or household who earns a substantial amount of money compared to the average income in the country. High earners in the United States earn more than $500,000, ranking in the top 1% of the wealthiest households in the country. For comparison, the median household income in the United States in 2022 was $74,580. As a result, you need to earn more than seven times your typical household income to be a high earner.

While saving for retirement doesn’t have a universal answer, high earners typically save more because of their financial skills. Specifically, high earners save $2.68 million by their mid to late 60s.

Remember, having a high income does not automatically equate to having a secure retirement fund. Proper financial planning, budgeting, and investing are crucial for anyone, regardless of income level, to ensure a comfortable retirement. In addition, factors such as lifestyle, debt levels and unexpected expenses can influence how much an individual or household can save for retirement.

Average retirement savings by age of high earners

High earners start with significant retirement savings and accumulate more over decades.

Let’s take a look at how much each age group saved for retirement in 2022. The data comes from the Federal Reserve Board and is based on the average amount for each age group:

Based on the data, pension savers under 35 saved almost a tenth more than those aged 75 and over; and almost a third more than those aged 35 to 44. Pension savers aged 65 to 74 saved the most – more than 12 times more than those under 35.

A financial advisor can help you build a plan for your income and net worth. Connect with a financial advisor today.

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Where are your retirement savings?

Assessing your current retirement savings is a crucial but challenging task as you head into your golden years. A detailed retirement plan includes your monthly budget, savings goals, and lifestyle, among other factors.

For example, you might decide to save certain amounts when you reach a certain age, such as three times your salary by age 40. On the other hand, you can set a savings goal, such as $3 million by age 65.

In addition, your method of saving is fundamental to your plan. You could save 10% of your salary each year, or set a strict monthly budget and throw as much as possible into various assets.

Remember, your investment strategy is just as critical as the money you put aside. For example, choosing low-fee investments, maxing out accounts (401(k)s and IRAs), and automating your savings will help you grow as you go. Plus, minimizing debt means you’ll have more to put towards retirement.

The essence of retirement is setting specific savings goals and taking a disciplined approach to achieving them. That said, financial obstacles (divorce, child rearing, etc.) and temptations to spend more now can get in the way of anyone’s retirement savings plan. As a result, consulting a financial expert can help you create and execute your plan.

How to get your savings on track

High 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 contributions to tax-advantaged accounts. Contribute the maximum amount allowed to your tax-advantaged retirement accounts. In 2023, the maximum annual 401(k) contribution is $22,500 ($23,000 in 2024); and $6,500 for IRAs ($7,000 in 2024). Additionally, catch-up contributions are available for savers age 50 or older, increasing maximum contributions by $7,500 for 401(k)s and $1,000 for IRAs in both 2023 and 2024.

• Consider non-qualified deferred compensation plans. Non-Qualified Deferred Compensation (NQDC) plans have no contribution limits and more flexible withdrawal rules. These plans are available only to executive-level roles that high earners often occupy, and can provide these employees with a unique tax advantage, allowing them to set aside significant portions of their retirement income beyond 401(k) limits.

• Expand your investment types. Open a brokerage account, buy real estate or become a stakeholder in a small business. These alternatives could help diversify your portfolio and mitigate risk. Note that each asset has specific tax implications.

• Avoid lifestyle inflation. This will involve making intentional financial choices to prevent your expenses from rising with your income. Start by setting clear financial goals, both short-term and long-term, to give you a clear sense of direction. Create a budget to track your income and expenses, distinguishing between essential needs and discretionary spending. Automate your savings and investments so a portion of your income consistently goes toward your financial goals. Then, review and adjust the budget to align with your evolving financial situation and goals.

You may also consider talking to a financial advisor if you are interested in professional advice for your circumstances and goals.

Conclusion

High earners can save a lot of money. But, they will need to take effective steps to secure their financial future. Key steps include maximizing contributions to tax-advantaged accounts, considering non-qualified deferred compensation plans, and diversifying investments.

Tips for high earners saving for retirement

• A comfortable retirement is not automatic, regardless of income level. Fortunately, a financial advisor can help you address challenges specific to your retirement needs. The free SmartAsset tool matches you with up to three verified financial advisors serving your area, and you can have a free introductory call with your matched advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help reach your financial goals, get started now.

• Taxes and lifestyle can drain your finances, drying up your savings. Here’s where high earners lose the most in these areas and how to counter it.

• Keep an emergency fund handy in case you face unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations, such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with prospects and provides marketing automation solutions so you can spend more time converting. Learn more about SmartAsset AMP.

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