Poor on $500,000 Annually and its Impact on Saving for Retirement

Last update on: Mar 14 2020

This blog post discusses a segment of the population that has household incomes of $500,000 annually or more. But the households basically have all their money committed before its earned aren’t saving enough to replace their incomes in retirement.

The phenomenon applies mostly to people in their 30s or 40s who have children. Both parents usually work and have student loans. They also have expensive homes and cars to reflect the lifestyle they believe their incomes should support. They also live in expensive areas, (that’s how they earn the high incomes) so what seems like an expensive home is average for the area. It’s interesting reading.

With over $250,000 a year in after-tax expenses, this family must change their lifestyle quite drastically. Even after eliminating 100% of charitable givings, getting rid of both car lease payments, and no longer paying for children’s lessons, they’ve still got $200,000 in annual living expenses to cover!

This couple is saving $36,000 a year in pre tax retirement accounts plus $7,000 a year in after tax savings. With a monthly expense of $22,583 to maintain their lifestyle, can you guess how many more years they need to save at their pace to maintain a similar lifestyle in retirement? At least another 63 years if we believe the couple should have at least 10X their $271,000 annual expenses in net worth by age 60.

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