Top Retirement Mistakes for High-Income Earners
Planning for retirement as a high-income earner comes with its own set of challenges. When you’re riding high on a successful career with a healthy paycheck, it’s easy to assume you’re financially set for the future. But here’s the reality: thinking that high earnings alone will guarantee a smooth retirement is a trap. Today, we’ll walk through five critical mistakes to avoid if you want to set yourself up for a solid, stress-free retirement.
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Not Saving Enough
You’ve got a strong income, and life is good—but are you saving enough for when the paychecks stop rolling in? It might surprise you, but even high earners can fall short on savings simply because they’re juggling so much in life. Careers are demanding, families are busy, and it’s easy to put your savings on autopilot, assuming you’re doing enough.
But are you really? Only time will tell. And by then, if you’re underprepared, it’s tough to catch up.
How Much Should You Be Saving?
The tricky part is there’s no simple formula to give you the “perfect” number. It’s not one-size-fits-all. For most high-income professionals, saving 15% to 20% of your income is a good starting point, but for some, especially those who get a later start in life, pushing toward 20% might be necessary. Physicians, for example, often don’t hit their financial stride until their 30s, so they may need to boost that percentage.
Your savings rate depends on assumptions about the future, including retirement spending and lifestyle. The longer you delay thinking about this, the harder it’ll be to get clear answers.
Your Lifestyle Won’t Suddenly Drop
Even if you want to believe you’ll cut back when you retire, for most people—let’s be honest—that’s unlikely. You’ve built a life you enjoy, and few are eager to downsize that life later. That’s why it’s so important to match your savings to the lifestyle you’re accustomed to, so you’re not left cutting corners during your golden years.
Lifestyle Creep: The Silent Enemy
It’s common to fall into the trap of lifestyle creep, especially for high-income earners. What’s lifestyle creep? It’s when your spending quietly increases as your income does. And for many professionals—think doctors, lawyers, and executives—that increase can be dramatic.
Consider the Jump in Income
Take a physician’s journey, for example. They might go from earning $60,000 during residency to earning $300,000 or more in a full-time role. That’s a huge jump! Naturally, the first thought might be to enjoy some of the fruits of your labor: a bigger house, a new car, fancy vacations. That’s perfectly fine, to an extent.
But here’s the issue: as your income grows, your spending tends to expand right along with it. Before you know it, you’re locked into a high-cost lifestyle that’s hard to backtrack from when it’s time to retire.
The Cost of Keeping Up With the Joneses
Here’s the truth many don’t realize until it’s too late: people don’t often want to hugely downgrade their lifestyle once they’ve gotten used to it. If you’re flying first class and hitting five-star resorts now, that’s not going to feel optional when you’re retired. The problem? It’s expensive. So, while lifestyle creep might be tempting today, it can quietly sabotage your future, making it far harder to save enough for the long haul.
Tax Planning: Not Just for Accountants
When it comes to your biggest bills, nothing beats taxes. High earners pay taxes… a lot of taxes. But here’s the kicker: taxes are not just a problem for April 15th each year. They need attention all year long. Tax planning isn’t a “set it and forget it” approach, especially if you’re earning a significant income. This isn’t just about paying less today—it’s about ensuring your future withdrawals don’t bite into your retirement funds.
Start With the Basics
Are you maxing out your tax-advantaged accounts? Whether it’s a 401k, 403b, TSP, or an HSA, these accounts can reduce your taxable income today while helping you stack up a larger retirement pool. Also, don’t forget your backdoor Roth IRA—you won’t get the tax break today, but you will down the road. Make sure you understand how itemized vs. standard deductions work. Underestimating how much these impact your yearly tax bill could leave money on the table.
Side hustles or gig work? Even better. These come with potential tax advantages, such as additional deductions or ways to lower your overall income tax. This is where collaboration with a solid CPA and your financial advisor becomes essential. Ensuring your tax plan is in place year after year can save you more than you realize.
Planning for Tomorrow’s Taxes
Most people don’t think too deeply about taxes after they retire. However, this is where tax planning becomes even more critical. The decumulation phase—when you start withdrawing from your accounts—is where high earners can run into real trouble if they haven’t planned well.
Do you know about Required Minimum Distributions (RMDs)? At a certain age, you’ll be forced to take money from your pre-tax accounts, and trust me—it’s taxable. If you haven’t planned ahead, that could mean a hefty tax bill and paying more than you need to. Roth conversions, done at the right time, can help. If the bulk of your wealth is wrapped up in tax-deferred accounts, it might be worth shifting some of it over to Roth accounts before you hit that RMD stage.
Are You Saving Too Much?
This one might seem absurd—can you actually save too much? It feels counterintuitive, but yes, it’s very possible to go overboard with savings, especially as a high-income earner. If you’re socking away 30% or more of your income but aren’t spending any of it on living today, you’re likely missing out. Nobody wants to hit retirement with regrets that they didn’t do more while they still had the time and health.
Life Is About Balance
There’s only so much traveling you can do when you’re 75. If you spend all your time focused on the future without enjoying the present, you could look back with some serious “what-ifs.” This is where having a delicate balance between saving and spending comes in. You don’t want to hoard every dollar if it means missing out on incredible experiences today.
Sure, you want to have a strong retirement. But life’s uncertain, and no one is promised tomorrow. Health can change, family dynamics shift—a lot can happen. Make sure you’re living today while preparing for tomorrow.
Decumulation Planning: Where the Real Work Begins
The decumulation phase is when the rubber meets the road. Think of it as driving a sports car that’s easy to accelerate but much harder to slow down smoothly. You’ve spent decades accumulating wealth, maxing out all the different buckets (401k, Roth IRA, brokerage accounts, etc.), and now it’s time to start spending. But where do you pull the money from, and how do you minimize taxes? This is what decumulation planning is all about.
The Right Withdrawal Sequence Matters
When you start depleting your retirement accounts, it’s not as simple as just pulling from anywhere. Ideally, you’ll want to pull from pre-tax accounts like a 401k first unless your taxable income would push you into a higher bracket in that particular year. You could also mix in withdrawals from taxable brokerage accounts or do strategic Roth conversions. The goal is to keep your tax liability low each year while getting the funds you need.
Having a mix of accounts (pre-tax, Roth, and taxable) allows you to control where you pull from each year to optimize taxes, which is why tax diversification is so key. It gives you flexibility regardless of unpredictable tax changes.
RMDs Aren’t Optional
Once you hit your 70s (depending on your birth year), the IRS will require you to start taking RMDs. These aren’t just suggestions—skip them, and you’re hit with penalties. Planning ahead helps minimize the cash flow challenges that come with RMDs. You don’t want to get hit with a large, unexpected tax bill simply because you didn’t prepare properly.
Conclusion: Retirement Success Is in the Details
Avoiding these retirement mistakes now will ensure your future is stable. From saving enough (but not too much) to watching out for lifestyle creep, tax planning, and the all-important decumulation phase—each one touches on crucial aspects of your long-term financial health. As a high-income earner, you’ve worked hard to get where you are, so don’t let these common pitfalls sneak up on you.
By staying proactive, regularly reviewing your financial goals, and seeking advice from trusted professionals, you’re positioning yourself for success. It’s not just about being comfortable in retirement—it’s about thriving. So ask yourself, are you covering all your bases? If not, now’s the perfect time to start.
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