By Christopher Price, CFP®, RICP®, ChFC®
Some people might think high-income earners have it easy when it comes to saving money, but that’s not necessarily the case. Sure, with a higher income you might have the potential to save more, but, unless you’re strategizing how to save, where to save, and what to save for, you can still find yourself struggling to meet your financial goals each year.
And, the more you make now, the more important it is to put the right strategies into place early in order to prepare for retirement. Here are three common financial pitfalls that I’ve seen my high-income clients struggle with and what you can do to help avoid them:
Just because you make good money doesn’t mean you have all the answers when it comes to your future. All too often, we see high-income earners spending most of what they make on expensive lifestyle items, while sacrificing saving for the future.
To reach your financial goals and help ensure you can maintain your lifestyle for years to come, you must determine what your retirement lifestyle will look like and how much of your current income you’ll need to save to achieve it. This can be difficult for high-earning couples because they often get accustomed to a certain lifestyle and don’t make realistic plans to maintain it in the future.
The first step in overcoming this financial pitfall is having a clear goal for your retirement. Do you want to retire to a beachside condo in Florida or are you content staying in your current home? Do you want to keep working part-time or do you want to travel the world?
Once you have a clear picture of where you want to end up, it becomes much easier to calculate what you need to do to make it happen. Defining your goals also helps create a system that can be tracked over time and adjusted as needed.
In my experience, I’ve found that high-earners also tend to have more stress about retirement than others. This is because even after deciding what you want your lifestyle to look like, you may face other obstacles when it comes to making your retirement goals a reality.
Annual contribution limits for retirement accounts are usually too low for you to make meaningful advances toward your retirement wealth. For example, the contribution limit to a 401(k) in 2022 is $20,500 (plus an additional $6,500 if you’re 50 or older). The contribution limit to an IRA is only $6,000 (or $7,000 if you’re 50 or older).
Financial professionals often recommend that people should consider contributing at least 15% of their income toward retirement, which means, if you earn $500,000 a year, you should be contributing $75,000 per year to retirement accounts. Maximizing contributions to a 401(k) and a traditional IRA don’t even come close, so high-income earners need to find creative ways to save for retirement.
You can help avoid this financial pitfall by working with a qualified financial professional who can help you create a savings plan for retirement based on your specific income level and future needs.
Another common financial pitfall is failing to develop an income plan in retirement. Often people focus on what they need to do to make it to a comfortable retirement and often forget that’s only half the equation. Your income plan during retirement will play a major role in how long your money will last and how much will be lost to taxes.
Each retirement asset has different tax characteristics, whether it be a 401(k), a Roth IRA, an annuity, or some form of equity compensation. Understanding the timing of distributions from each source is a significant part of managing your overall tax bill in retirement.
It’s also important to pay attention to local and federal tax policies that could impact your personal and/or business finances. It’s crucial to stay up to date on changes like these and amend your financial strategies as needed.
As a high-income earner, proactive financial planning is necessary to help ensure that you make the most of your wealth. Don’t let yourself fall victim to these financial pitfalls and others; schedule an introductory discovery consultation by calling (954) 625-1531 or emailing me at ChristopherPrice@FinancialGuide.com.
Christopher Price is a financial advisor and investment advisor representative at Coastal Wealth, a full-service financial planning firm dedicated to going the extra mile to serve its clients with excellence. With over 10 years of experience, Christopher works with high-net-worth and business owner clients, using an educational approach to guide them through the opportunities and challenges they face so they can pursue their goals with confidence. Christopher is known for building long-lasting relationships with his clients and for providing a safe environment for clients to ask questions, receive honest and understandable answers, and become empowered to make the appropriate financial decisions for their lives. Christopher graduated from Susquehanna University with a bachelor’s degree, double majoring in finance and entrepreneurship. He also holds the CERTIFIED FINANCIAL PLANNER Professional™, Retirement Income Certified Professional® (RICP®), and Chartered Financial Consultant® (ChFC®) professional designations. Christopher’s passion for education has led to him partnering with his community to provide workshops on a variety of financial topics that are designed to help financial literacy and confidence.
When he’s not working, you can find Christopher exploring his many interests and pursuing his extensive goals, including studying for his pilot’s license, traveling, playing baseball or golf, enjoying the ocean outside his front door, or taking his dog, Ranger, to the dog park. He also loves to donate his time and money to local charities and causes he cares about. To learn more about Christopher, connect with him on LinkedIn.
**The views and opinions expressed are those of Christopher Price. Christopher Price’s views are not necessarily those of MM Investors Services LLC, or its affiliates.
Christopher Price is a registered representatives of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC (www.SIPC.org). 1000 Corporate Drive Fort Lauderdale, FL 33334. (954) 625-1351.** CRN202504-2271712