Six Figures But No Retirement Savings? Here’s Why & How to Fix That Problem
As a personal financial coach, I often meet clients in their 50s who have earned six-figure incomes for years, but are surprised when they realize their retirement savings aren’t where they’d hoped. They ask, “How did I get here?” It’s more common than you might think, but the good news is, it’s not too late to make a change.
Let’s break down some of the most common reasons why people find themselves in these situations and what you can do about it to prevent yourself from winding up where they did. Some of the strategies suggested here may seem a bit drastic, yet it may be time for serious action. So, you might sit with these strategies and maybe also come up with some of your own.
1. Lifestyle Inflation (Lifestyle Creep)
The more you earn, the more you spend, that’s lifestyle inflation. You upgrade your home, get a nicer car, take more luxurious vacations, and before you know it, all that extra income is being spent on or to maintain your new and more expensive "lifestyle" instead of saving that extra income. It’s an easy trap to fall into and many do.
Strategy:
Start by analyzing your current spending habits. Track where your money is going and identify areas where you can cut back. Can you downsize or pay off a high-interest loan? Redirect that extra cash into your retirement accounts. A budget reset can be eye-opening, and allocating even a modest portion of your income to savings now will make a big difference in your retirement in the future.
2. Lack of Financial Literacy
It’s not uncommon for people, even high earners, to feel uncertain about financial planning. Many assume they’ll figure it out later, but “later” can sneak up fast. Not knowing how to make the most of investment opportunities or understanding compound growth means you might miss out on decades of potential returns.
Strategy:
Invest in your financial education. Meet with a financial mentor or take advantage of online resources to build your understanding of investments, tax-advantaged retirement accounts, and other savings strategies. If it seems overwhelming, start simple, commit to contributing the maximum you can to your employer's 401(k) or a traditional IRA. You don’t have to be an expert to make smart decisions.
3. Delayed Retirement Savings
Raising kids, paying off student loans, buying a house, there are a lot of financial priorities that come before retirement in your earlier years. So, it’s easy to kick the can down the road, thinking you’ll have time to catch up later.
Strategy:
It's time to turbocharge your retirement savings. If you’re over 50, you can take advantage of "catch-up" contributions to your 401(k) or IRA. For 2023, that’s an extra $7,500 in a 401(k) and $1,000 in an IRA. Combine that with automating your savings contributions so they come out of your paycheck before you even see it, and you’ll start building momentum quickly.
4. High Cost of Living
Living in expensive areas with a high cost of living can sap your savings, even on a six-figure salary. Housing, healthcare, and everyday expenses add up, and it can feel like there’s nothing left to save at the end of the month.
Strategy:
Consider scaling back in areas where you have control. Could you refinance your mortgage or move to a lower-cost area? Small reductions in big-ticket expenses like housing and transportation can free up significant amounts of money for your retirement savings. If moving isn’t an option, adjust other discretionary spending to compensate, like dining out or entertainment.
5. Job Losses or Career Setbacks
Many in their 50s have experienced job loss, unemployment, or periods of reduced income. This can severely cut into retirement contributions, especially if it happens during peak earning years.
Strategy:
If you’re back on your feet, now’s the time to make up for lost time. Maximize your retirement contributions and consider opening a Roth IRA if you qualify, to diversify your tax exposure in retirement. Also, building an emergency fund can give you a cushion, so any future career hiccups won’t force you to dip into your retirement savings.
6. Underestimating Retirement Needs
Many people don’t know exactly how much they’ll need in retirement, especially when it comes to healthcare costs. Assuming Social Security will cover all your expenses is a common but dangerous misconception.
Strategy:
Create a detailed retirement plan. Start by estimating your future expenses. Think housing, healthcare, travel, and daily living costs. Then, calculate how much income you can expect from Social Security and your retirement accounts. If there’s a gap, it’s time to start closing it. Use retirement calculators and tools to create a clear roadmap for how much you need to save each month to reach your goals.
7. Helping Adult Children
We love our kids, and it’s natural to want to help them out, but continuing to support adult children financially can drain your retirement savings faster than you realize. Whether it’s helping with tuition, a down payment on a home, or other expenses, these well-intentioned gestures add up.
Strategy:
It’s time for some tough love. Focus on funding your retirement first and let your kids know that financial support may need to taper off. Instead, teach them financial independence so they can thrive on their own. Consider setting boundaries and communicating openly about the importance of securing your own financial future before you continue to help them.
8. Debt Accumulation
It’s hard to save when you’re juggling a mortgage, credit card debt, or personal loans. Every dollar that goes to debt payments is a dollar that’s not going into your retirement accounts.
Strategy:
Attack your high-interest debt with vigor. Consider using strategies like the debt snowball or avalanche methods to pay off balances as quickly as possible. Once your debts are reduced or eliminated, you can redirect those payments into retirement savings, boosting your contributions significantly. Check out these debt, bills and obligations resources on my website for further help and assistance.
9. Failure to Invest
It’s not enough just to save, you need to invest that money wisely. Too many people keep their retirement savings in cash or low-interest savings accounts, missing out on the power of compound growth that comes from investing in stocks, bonds, and other growth-oriented assets.
Strategy:
If you haven’t already, it’s time to diversify your retirement portfolio. Even in your 50s, there’s time for your investments to grow. Work with a financial advisor to determine an asset allocation that fits your risk tolerance and time horizon. Start small if you’re nervous, but understand that some market exposure is crucial for growing your retirement nest egg. Check out these investment and wealth planning resources on my website for more ideas and help.
10. Relying Much on Employer Benefits
Many high-income earners believe that their employer-sponsored retirement plans, like a 401(k) or pension, will be enough to fund their retirement. While these benefits are helpful, relying solely on them without additional savings or investments can leave you short in retirement, especially if you change jobs or experience a downturn in the stock market.
Strategy:
Diversify your retirement savings beyond your employer’s plan. Open an IRA, contribute to a Health Savings Account (HSA) if you have one, and consider taxable investment accounts to supplement your retirement income. This way, if your employer benefits fall short or your company doesn’t offer a pension, you’ll have other resources to rely on. Having multiple streams of savings will also give you more flexibility and security in retirement.
Conclusion
If you’re in your 50s and find yourself behind on retirement savings, don’t panic. The strategies outlined here can help you take control of your financial future, even if you’re starting later than you’d like. With careful planning and some adjustments, you can still build a comfortable retirement.
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LORI WILSON
YOUR MONEY COACH
For over 18 years, I immersed myself in the world of financial services as an advisor, mastering a broad spectrum of areas from insurance (i.e., life, disability, long-term care, health) to investments and comprehensive financial planning. Today, I'm dedicated to helping my clients improve their financial literacy, as too many people are so unprepared — not just for retirement, but for managing their day-to-day finances. This has to change. The ever lurking problem is that money does bring up both anxiety and fear, not just because people lack capability or the ability to grasp or understand money, but because financial literacy was NEVER TAUGHT to them, either by their parents, society, in school or a combination of those three.
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As a MONEY COACH, LORI WILSON is dedicated to helping you improve your financial literacy, as too many people are so unprepared, not just for retirement, but for managing their day-to-day finances. Lori's mission is to provide the financial knowledge her clients need to make clear, confident, and informed decisions about money. When you're ready to start your journey to financial mastery, you can call upon Lori to help.
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