Being a high earner has many perks. But a lack of money anxiety often isn’t one of them. If you make good money, but still worry about falling short in retirement, you might be a HENRY.
HENRY
stands for “high earner, not rich yet.” And according to a new BW survey conducted online by The Harris Poll, 30% of non-retired HENRYs — defined here as Americans with a household income of $200,000 or more — don’t have confidence they’ll have enough money to retire comfortably, despite their high earner status.
“Even though HENRYs earn above-average money, they often face higher expenses living in costly areas,” says Kate Ashford, investing specialist for BW.
“They also may have higher student loan debt and fewer years in the workforce due to the schooling required to land their high-earner jobs. Combined with lifestyle creep, these challenges can make it harder to save enough for retirement.”
Here are five retirement mistakes HENRYs make and how to avoid them to set yourself up for future prosperity.
Mistake 1: Not having a retirement savings goal
It’s hard to reach an ill-defined goal. According to the survey, just 41% of HENRYs with retirement accounts have a specific retirement savings goal amount. This may explain why some high earners aren’t confident about saving enough — they don’t know what “enough” even means.
Without access to a very reliable crystal ball, aspiring retirees have to make some assumptions about their life after work in order to determine a reasonable retirement goal. But there are a couple rules of thumb that can help you get started.
Experts say you may need 70% to 90% of your pre-retirement income to cover costs in retirement. This is because you’ll no longer owe payroll taxes or need to save for, well, retirement. You can then use the 4% withdrawal rule to calculate a retirement goal amount. This rule says, based on historical performance, that you can withdraw 4% of your nest egg annually, and likely not run out of money for at least 30 years.
Let’s say your household income is $250,000 and you’ll need 70% of that, or $175,000 per year, in retirement. Multiply the $175,000 by 25 to get an overall retirement savings goal number. In this case, it would be $4,375,000. (Multiplying the annual income by 25 gets you the total. This is the inverse of the 4% rule — dividing the total by 4% to get the annual income.)
This is simply a starting point and may not be perfect. The amount you need will depend on how you want to spend your retirement. Plan on paying for grandkids’ college or globetrotting in your golden years? Save more. But if the mortgage on your forever home is paid off and your primary hobby is gardening, you may be able to save less.
Mistake 2: Locking yourself into a high earner lifestyle
Lifestyle creep is often criticized, but not inherently bad. If you’re spending more as you make more, it’s a smart move to keep fixed costs in check — high earning jobs can be harder to replace than lower paying jobs, in case of layoff or burnout.
The
50/30/20 budget
suggests spending 50% of your income on needs, 30% on wants and 20% toward debt and savings. As a high earner, you might be tempted to take on a large mortgage payment or car lease, as long as it stays within that framework of 50% “needs”. But if you limit fixed costs to less than you can technically afford now, you can save more for the future and even take a pay cut later if you decide to make a career change.
Mistake 3: Reducing retirement savings
Around 1 in 6 HENRYs with retirement accounts (16%) decreased their retirement contributions in the past 12 months, according to the survey. There are times in life, even for high earners, when pulling back on retirement savings may be necessary. Whether you’re focusing on a more immediate goal, like paying off debt or building a bigger emergency fund, or you’re in a costly season of life, like covering childcare costs for young kids, sometimes it makes sense to save less for the future temporarily to focus on the present.
That said, it’s a good idea to get back to prioritizing investing for your future when you can. For many, consistent contributions and time to grow are key to reaching a healthy retirement savings balance.
It’s also recommended that even if you have to pull back on investments temporarily, strive to set aside at least enough to get the full match on an employer-sponsored retirement account, like a
401(k)
, if your company offers this benefit.
Mistake 4: Ignoring your investments (forever)
“Set it and forget it” can be great advice for investors who might otherwise act rashly during times of market volatility. But neglecting your investments could also lead to higher fees than necessary and an out-of-whack asset allocation.
According to the survey, 16% of HENRYs with retirement accounts have never changed the investments in their accounts since opening. Of course, it’s possible they picked the best investment options for them from the start. But if you haven’t looked at your investments lately, it’s worth making sure they still work for you.
A “good” retirement portfolio will depend on several factors, including a person’s risk tolerance, goals and timeline.
It is important to ensure that your investments are well-diversified and that high fees are not eating up your returns. Investing in high-fee funds does not guarantee higher returns, so it is advisable to opt for the lowest cost funds that align with your diversification strategy.
Market fluctuations can impact the allocation of your portfolio over time, such as the proportion invested in stocks versus bonds. Therefore, it is recommended to rebalance your portfolio at least once a year to maintain your asset mix in line with your risk tolerance and goals. This does not necessarily mean changing your investments, but rather adjusting your allocation back to your desired level. If you are unsure how to start, you can search for “rebalance account” on your brokerage’s website or contact them for assistance.
Withdrawing money from your retirement accounts before retirement is a common mistake that can have long-term consequences. Even if you are able to withdraw funds without penalties, it can still impact your future investment returns. It is best to leave your retirement savings untouched until you retire, except in cases of true emergencies. Consider alternative options for short-term financial needs, such as saving over time, taking on low-interest debt, or reevaluating your plans.
A high income can provide financial security, but avoiding these mistakes and making adjustments now can help you secure a comfortable retirement. following sentence:
I am going to the store to buy some groceries.
I will be heading to the store to purchase groceries.