Remarkable Wealth Accumulated for Retirement by the Leading 10%
How Much the Top 10% Have Socked Away for Retirement
It's no secret that the average Joe is finding it tough to save for retirement. But the top 10%? They're swimming in dough. In fact, they've managed to stash nearly seven figures in their retirement accounts!
According to a Northwestern Mutual survey, the "magic number" for retirement is $1.26 million. That's what the average American is aiming for. But the top 10%? They're already there, or close to it.
Data from the Federal Reserve's Survey of Consumer Finances shows that the median retirement savings amount for the top 10% is over $900,000. That's compared to just $87,000 for the rest of us. It's a huge gap that's only getting wider.
The Secrets of the Top 10%
So, how do these high-rolling individuals do it? Well, they're smart about their money, that's for sure. They use tax-advantaged strategies like backdoor Roth IRAs and cash value life insurance to build and grow their wealth. And despite their higher incomes, they're careful about steering clear of lifestyle inflation. They focus on saving and investing rather than splurging on fancy cars and vacations.
Tax-Advantaged Wealth Building
The top 10% don't just save money; they use nifty financial tricks to grow and protect their wealth. They're proactive about leveraging tools that offer tax advantages and long-term growth opportunities. With Roth individual retirement accounts (IRAs) and life insurance, they not only grow their wealth but also help preserve it by reducing their tax burden over time.
"High earners tend to leverage backdoor Roth IRAs, which are ideal for those who exceed income limits," said Danielle Darling, LPL financial advisor at Resource One Advisors.
The way it works is that high earners bypass income limits by contributing to a traditional IRA and then converting it to a Roth IRA. This strategy enables tax-free growth and withdrawals in retirement.
And while they're invested in more traditional retirement accounts, these HNW individuals also employ some more creative tactics. They use cash value life insurance, taxable investment accounts with tax-loss harvesting, and even mega backdoor Roth IRAs. These strategies help them amass an impressive nest egg without having to settle for mere pennies on the dollar come tax time.
Living below their means
Discipline is key to their financial success. Instead of letting income increases lead to lifestyle creep, these individuals remain focused on long-term goals. This restraint allows them to consistently save and invest, building wealth rather than spending it all away.
"They are generally better at avoiding lifestyle creep," Darling says. "Even with more financial means, many live below their means and prioritize saving and investing first."
The Bottom Line
At the end of the day, achieving a secure retirement isn't just about earning more; it's about adopting the right mindset and strategies. The top 10% of earners prioritize long-term planning, tax efficiency, consistent saving, and disciplined spending. By understanding and applying some of these highly effective habits, anyone can move closer to financial independence and a secure retirement.
So, if you're feeling a little behind in the savings department, take a page from the top 10%'s playbook. Start saving now, use tax-advantaged strategies, and focus on your long-term goals. Before you know it, you'll be on track to join the ranks of the wealthy retirees.
Tokens and initial coin offerings (ICO) could potentially be part of the wealth-management strategy of the top 10%, as they often invest in innovative financial technologies and opportunities for high returns.
For long-term liquidity and wealth growth, the top 10% may consider adding token investments to their personal-finance portfolio, seeking out established and promising projects that align with their financial goals.
As they actively manage their wealth, the top 10% may also leverage the flexibility and potential growth offered by tokens and decentralized finance (DeFi) platforms to ensure a diversified portfolio that caters to their retirement and wealth-management needs.
