I’ve saved $600,000 for retirement on a $400,000 salary – How can I save even more?

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.

It’s common for even high earners to feel tight, especially if you live in an expensive area like New York, San Francisco, or Boston. Living costs near your workplace will almost certainly be high, especially since you’re competing with other six-figure earners. Depending on your field, you could easily have $200,000 or more in student loans. And the long hours required by many lucrative jobs can lead to a surprising amount of stress. Often one spouse will take care of the household and the children to balance the family economy.

These dynamics may require special considerations for long-term planning. If you’re looking ahead and your retirement savings aren’t what you’d like them to be, there are strategies you can take to accelerate your savings and get ahead. For advice on your personal situation, talk to a financial advisor today.

If you are younger, invest aggressively

The more time you have to save and invest, the better off you are.

For example, let’s say you are 45 years old. In this case, you may not have a problem to solve. Take the starting point of $600,000, work until age 70, and continue to make standard 10% contributions to an S&P 500 fund. At that rate, you could retire with about $10.4 million in the bank , giving you $416,000 a year at a 4% withdrawal rate.

If you’re older, save aggressively

On the other hand, say you are 60 years old. With 10 years to save, the same scheme can generate savings of around $2.2 million. At a 4% withdrawal rate, that would generate $88,000 a year, enough for some people to live comfortably on, but you’ll probably feel tight on your income during your working years.

So your plan here will depend almost entirely on how old you are.

If possible, withdraw later so your investments have time to grow. And adapt your approach according to your age. The younger you are, the more you can compensate for an underfunded portfolio with aggressive investment strategies. Your portfolio has time to grow and recover from market downturns.

The older you are, the less time your portfolio has to grow and recover from downturns. Instead, you can compensate with the safer option of aggressive budgeting and increased savings. If you’re not sure about the best strategy to maximize your retirement savings, talk to a financial advisor about your situation.

Maximize contributions with a spousal IRA

Don’t forget that your husband receives annual pension contributions even though he is not working. If you haven’t already, ask your spouse to open an IRA (ideally a Roth IRA) and max out their annual contributions. While IRAs typically require an individual to contribute their own earned income, a spousal IRA allows the working spouse to make contributions on behalf of the nonworking spouse.

The story continues

The limits of an IRA are relatively low, but still useful. For example, in 2023, you can put up to $6,500 per year into an IRA. If you made that contribution to an S&P 500 fund every year for the next 25 years, you could save about $709,000.

By the way, don’t forget to contribute to your own IRA. Given your income, you likely have a 401(k) at work, which is good, but you can also invest in an IRA on the side.

A financial advisor can help you determine appropriate portfolio allocations.

Set a retirement income and budget back

High spending power also means you have a lot of saving power if you’re willing to budget.

So, take the following steps:

First, figure out the costs of a lifestyle you’d like. You also probably have things you can reduce but can’t cut. For example, keep traveling but fly coach. Budget for an enjoyable lifestyle, but not a lavish one. You’ll also want to build in room for the unexpected. A financial advisor can help you design a realistic retirement budget. Finally, you’ll want to sync this budget with a reasonable retirement income projection.

For example, using the 4% rule, if you want to live on $150,000 a year, you’ll need a portfolio of $3.75 million by retirement. You currently make about $300,000 after taxes (roughly, depending on your state). Even if you have 10 years until retirement, if you set your budget to $150,000 now and contribute the other $150,000 to savings, you could have $3.9 million in retirement. You will have a comfortable income now and secure that income for years to come.

conclusion

The high-income, high-spending lifestyle is more common than you might think, but it can lead to a crisis when you want to retire. The good news is that you have plenty of saving power, but depending on your age, it could mean significantly rethinking your budget and lifestyle today so you can live comfortably in the future.

Wealth Investment Tips

• With this kind of money, it’s helpful to start thinking about your finances in terms of “wealth” rather than income. Wealth management is the practice of letting money build money and looking at those assets over the long term. It could be very useful for someone with significant earnings.

• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be difficult. 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.

• 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.

Photo credit: ©iStock.com/ShapeCharge

The post I made $400,000 last year and have $600,000 in retirement savings, but my husband doesn’t work. How can I save more for retirement? appeared first on SmartReads by SmartAsset.