highincome

A senior woman comparing how much she has saved for retirement against other savers in her age group.

If you’ve got more money, you’ve got more retirement options. High-income 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 multi-millionaire. High-income earners often have different retirement needs than others. Here’s how much high-income earners are saving 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-Income Earners Have Saved for Retirement

A high-income earner is an individual or household that earns a substantial amount of money compared to the average income in the country. High-income earners in the United States make over $500,000, putting themselves in the top 1% of the wealthiest households in the country. For a comparison, the median household income in the United States in 2022 was $74,580. As a result, you must make over seven times the typical household income to be a high-income earner.

While saving for retirement has no one-size-fits-all answer, high-income earners usually save more because of their financial abilities. Specifically, high-income earners save $2.68 million by their mid-to-late sixties.

Remember, having a high income doesn’t 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. Additionally, factors like 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 significant retirement savings and accumulate more throughout the decades.

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

Based on the data, retirement savers under age 35 saved almost one-tenth as much as those 75 and older; and almost one-third as much as those between ages 35 and 44. Retirement savers between ages 65 and 74 saved the most — over 12 times more than those under age 35.

Where Your Retirement Savings Stand

A man adjusting his retirement savings goals after researching the average savings for his age group.

Evaluating your current retirement savings is a crucial but challenging task as you work your way to your golden 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 could set one savings goal, such as $3 million by age 65.

Additionally, your savings method is foundational to your plan. You could save 10% of your salary every year or set a stringent monthly budget and dump as much as possible into various assets.

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

The essence of retirement is setting specific savings goals and following a disciplined approach to achieve them. That being said, financial obstacles (divorce, education for children, etc.) and temptations to spend more in the present can hinder anyone’s retirement savings plan. As a result, consulting a financial expert could help you create and execute your plan.

How to Get Your Savings on Track

High-income earners have unique opportunities and challenges when it comes to retirement planning. Here are four common strategies to help get your retirement savings on track:

Maximize contributions to tax-advantaged accounts. Contribute the maximum allowable amount 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 to 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 for executive-level roles high-income earners often occupy, and can offer these employees a unique tax advantage by allowing them to set aside significant portions of their income for retirement beyond a 401(k)’s 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. Remember, 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- and long-term, to give yourself 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 towards your financial goals. Then review and adjust your budget to align it with your evolving financial situation and goals.

Bottom Line

A senior couple compares their retirement savings with other people in their age group.

High-income 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-Income Earners Saving for Retirement

A comfortable retirement isn’t automatic, regardless of your income level. Fortunately, a financial advisor can help you tackle specific challenges for your retirement needs. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Taxes and lifestyle can drain your finances, drying up your savings capacity. Here’s where high earners lose most in these areas and how to counteract them.

Photo credit: ©iStock.com/fizkes, ©iStock.com/szefei, ©iStock.com/brizmaker

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WASHINGTON (AP) — The IRS is showcasing its new capability to aggressively audit high-income tax dodgers as it makes the case for sustained funding and tries to avert budget cuts sought by Republicans who want to gut the agency.

IRS leaders said they collected $38 million in delinquent taxes from more than 175 high-income taxpayers in the past few months.

In one case, an individual had used money owed to the government to buy a Maserati and a Bentley, and roughly 100 high-income people tried to get favorable tax treatment through Puerto Rico without meeting certain tax requirements. Many of those cases are expected to face criminal investigation.

“It just shows you how much money is out there in delinquent taxes, and there are so many more cases for us to tackle,” said new IRS Commissioner Daniel Werfel, just four months into the job. “There’s just a significant opportunity there.”

No comparable figures exist for how those high-dollar tax collections compared with previous years, said Jodie Reynolds, speaking for the agency. Rather, the new data reflect an initiative that started after the agency received a new funding stream through the Inflation Reduction Act passed in August by Democrats.

The new data collection “is an example of work we expect to continue to focus on with IRA funding,” she said.

Werfel, in a call with reporters on Thursday, also cited the federal tax collector’s enhanced ability to identify tax delinquents from resources provided by the Inflation Reduction Act.

The agency was in line for an $80 billion infusion under the law but that money is vulnerable to potential cutbacks.

House Republicans built a $1.4 billion reduction to the IRS into the debt ceiling and budget cuts package passed by Congress this summer. The White House said the debt deal also has a separate agreement to take $20 billion from the IRS over the next two years and divert that money to other non-defense programs.

Now, the agency is trying to show the value of the Inflation Reduction Act funding for taxpayers as appropriations season closes in, and to show the impact of its efforts to do more to audit high-income taxpayers. Last summer Treasury Secretary Janet Yellen gave the IRS leadership instructions not to increase audit rates on people making less than $400,000 a year annually, and to focus on high-income taxpayers.

A team of academic economists and IRS researchers in 2021 found that the top 1% of U.S. income earners fail to report more than 20% of their earnings to the IRS.

The IRS said its workers answered 3 million more phone calls than in the last filing season, cut wait times to 3 minutes from 28 and cleared the backlog of unprocessed 2022 tax returns that had no errors. It is opening new taxpayer assistance centers and holding events to help people who live far from the agency’s in-person offices.

“The mixed results here of some taxpayers, still frustrated, and some taxpayers seeing dramatic improvements tells us we have more work to do,” Werfel said.

The IRS’s enforcement staff has shrunk by about one-third since 2010 and has been operating with outdated technology that the agency said it is gradually automating.

In April, the agency released a report outlining how it would spend the money allotted through the Inflation Reduction Act, such as bringing more paper-based systems online and answering taxpayers’ phone calls promptly.

Other plans are more ambitious, including exploring ways to create a government-operated electronic free-file tax return system, which is currently being piloted.

The idea of providing additional money for the agency has been politically controversial since 2013, when the IRS under the Obama administration was found to scrutinize political groups that applied for tax-exempt status.

A Treasury Department inspector general report found that both conservative and liberal groups were chosen for scrutiny.