You may think of high earners as people who can afford nice homes, expensive clothes and shiny cars. You may think they don’t have to worry about money, but that’s not the case. A recent study reveals that many high earners may be worrying about money come retirement. According to the study by the Schwartz Center for Economic Policy Analysis, about 30 percent of people who earn more than $80,000 a year and are within 10 to 15 years of retirement have less than $200,000 saved for retirement.
The amount of money needed for retirement is different for every person and every situation, it depends on what an individual wants to do in retirement and what their needs are. The study found that only 3 percent of high earners have the recommended $1 million saved for retirement. Since $1 million is a common number thrown out by experts for retirement savings, let’s take a deeper look at that number. We normally tell clients to expect to withdraw 4 percent of their money each year in retirement. (At this rate you should never run out of money) 4 percent of $1 million gives you $40,000 a year. That works out to be $3,300 a month, pre-tax. Someone who is a high earner could be used to spending as much as $10,000 a month, so $1 million in retirement savings will not allow for that lifestyle. If $1 million in retirement savings gives you $3,300 a month, high earners will need more than $3 million in retirement savings to maintain their pre-retirement lifestyle.
If you are in the 51 to 56 age range and nearing retirement but find yourself lacking the funds to support the lifestyle you want once you stop working, what can you do? First and foremost, make a budget. Many times when people aren’t saving enough, it’s because they aren’t keeping track of what they’re spending or what they’re saving. You need to know where your money is going and how much you have to work with. Once that’s figured out, you can determine where to make cuts to save more money. This may require a change in lifestyle now to support your lifestyle later. For example, if you’re going out to eat three nights a week and spending $50 each time, consider cutting that down to one night a week and you’ll save $100 each week. Subscriptions are another area to consider cutting back in. These days everybody has multiple subscriptions to things like Netflix, Hulu, Spotify, etc. that they don’t even realize the amount of money that’s going out.
Banking raises and bonuses is another way to start putting more towards your retirement savings right away. In general, any money received that is above and beyond your regular salary should be saved. We work with a lot of folks who get bonuses on an annual or quarterly basis and we always tell them to not even think about that money. Live off your normal salary and that extra money can go directly into savings.
You can also plan to work longer. What I normally end up finding with clients who won’t have enough money for retirement is that they can either adjust how much they are spending or they can work longer. This gives you more years of making money and contributing to any employer sponsored retirement plans so your retirement nest egg has more opportunity to grow.
Start working with an advisor now or make sure you are working with the right advisor for your financial needs. An advisor can help you evaluate if you are on track to retire how you want, and if you’re not they can come up with a plan to help you get there. If you are already working with an advisor, make sure it’s one who focuses on retirement planning. You don’t want to get 10 years into retirement and run out of money because you didn’t have a good plan in place. Our job as advisors is not to paint the perfect fuzzy picture but to be honest with you and tell you what the reality is for your retirement goals. People are now living in retirement for 25 to 30 years, so you really need your money to last. That’s why it’s imperative to work with an advisor. Once you have the money saved you need to protect it and make sure it’s growing to help you sail through your golden years with the homes, clothes, cars and vacations you want.