If You’re Making $400,000 Per Year, Maxing Your 401(k) Won’t Be Enough

Maxing Your 401(k) Isn’t Enough: Building Flexibility for High Earners

Hunter Kelly, a CFP and founder of Palm Valley Wealth Management, explains that while maxing out 401(k)s and other retirement accounts is great early-career advice, it can become incomplete for mid-career high earners who want options before age 60. Using a story about David and Sarah, a high-income healthcare couple earning about $400,000 with two young kids, he shows how they accumulated nearly $3 million in retirement accounts yet still felt tight and unable to reduce work because most of their wealth was locked up for 15–20 years. He argues the goal shifts from accumulating money to positioning it for flexibility, including building taxable brokerage investments and liquidity to support life changes. He emphasizes financial freedom as having choices along the way, not just retirement.

00:00 Welcome and Format Change
00:57 Meet David and Sarah
01:41 Doing Everything Right
02:01 Why It Still Feels Tight
03:14 Early Career Advice Works
04:22 When Income Grows Complex
04:50 Retirement Accounts Trap
05:57 Flexibility Over Tax Perks
08:23 From Accumulation to Positioning
08:48 Building Liquidity Options
09:24 Peace of Mind and Choices
10:25 Wrap Up and Disclaimer

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Transcript

0:00

And welcome back to The Retire Early Retire Now podcast. The podcast where we help high income earning families. Stop guessing, stop stressing, and start using money as a tool to live better now and in the future. And if you're new here, I'm Hunter Kelly, certified financial planner and founder Palm Valley Wealth Management. I work with high income earning families. Who are doing most of the financial decisions correctly, but still feel a little unsure. Today I wanna change things up a little bit. I wanna start with a story and continue with the story throughout the podcast. I feel like this will help people follow along a little bit better, and make it a little bit more enjoyable. So just trying something new for a few. Podcast episode. So let me know what you think. If you like this podcast, you feel like someone would benefit from listening to this podcast, whether it's this episode or any previous episodes, go ahead and share that with a friend and take 10 seconds to leave a five star review on your favorite podcasting app. So a few months ago, I sat down with a couple that I will call David and Sarah. David is a physician. Sarah works in healthcare administration. They're both in their forties. They have two kids under two, two kids under 10. They have a beautiful home, a busy life, a full life, and their household income is right around$400,000 per year from, the outside. David and Sarah look like the exact. Picture of financial success, you would, most people would assume they are extremely financially successful, right? Or at what most people would define as success. They're doing everything what the financial world tells you to do. They're maxing out their 4 0 1 Ks every year. They're contributing to Roth IRAs. They've started saving for their kids' college, no credit card debt. Objectively, they are doing things correct and they're doing a great job at it. But halfway through the meeting, that I had with David and Sarah, David leaned backed in his chair and said. something interesting or something I found interesting. He looked at all the numbers on the screen and said, it feels like we're doing everything right, but it still feels tight month to month. They're not broke, they're not struggling. They just feel tight. Then Sarah asked a question I hear more often than people think, if you're already maxing out our 4 0 1 Ks, what else are we supposed to be doing? Right. So most people know about the 4 0 1 Ks and retirement accounts, but. Often I get this question of what else are we supposed to be doing? The question gets at the heart of today's episode because if you're making$400,000 a year maxing out your 401k, that's great, but it's likely not gonna be enough, especially if you want to retire early. Not because you're doing anything wrong, but because the strategy works early in your career, but because the strategy that works early in your career becomes incomplete later in your career or as your goals potentially change. So let me show you why. Early in your career, financial advice is pretty simple. Go read Dave Ramsey's book. Susie Orman, all these financial gurus. All right. They tell you, make more, spend less, max out your retirement accounts. And honestly, that advice works incredibly well. as you get started, as you're making 80, a hundred,$200,000, right? Retirement accounts give you tax advantages. You learn saving discipline, and you start to reap the benefits after a handful of years of long-term compounding interest. And when it comes and when income is lower. The hardest part is simply building the habit of investing. David and Sarah followed that advice perfectly. They were doing everything correctly When David finished residency. their income obviously jumped dramatically when he took his first attending physician job. They started maxing out everything 4 0 1 Ks Roth IRAs, like we spoke about in the intro, they were disciplined, as disciplined as anyone could be. The discipline built a great foundation, but something changes. When your income grows to three, four,$500,000, your financial life becomes more complex, and if you keep applying early stage advice to mid stage wealth, every something strange starts to happen. Your wealth grows, but. And this is a big, but your flexibility doesn't, I often find that this is a very common issue. So as we walk through their numbers together, something interesting came up between their 401k IRAs, David and Sarah had already accumulated close to$3 million in their retirement accounts, which is fantastic. They had done lots of things, correct. but when I asked them a simple question, what would happen if one of you wanted to step away from, from work for a few years? Maybe Sarah wanted to slow down while the kids were younger, maybe David wanted to move into a lower stress roll or cut back his hours. Maybe they wanted a little bit of breathing room. They looked at each other and Sarah said, honestly, I don't think we could, but because. Not because they didn't have money or they didn't have wealth, but because almost all of their money or all of their wealth was locked up in their retirement accounts. This is something I see very, very frequently. Money they couldn't easily access for another 15 to 20 years. They were financially successful, but structurally they were constrained. Here's something the financial industry doesn't talk about enough. Retirement accounts. Yeah, they're in, they're an incredible tool, but they were designed for retirement income, not middle of your life. Flexibility. When you max out your 401k, you're making a trade, and we talk about trade offs a lot on this podcast, right? You're accepting that you get these tax advantages now or, or later. In exchange for restricted access to your account until later, that trade is almost always worth it early in your career. But for high income earners later in their career or mid-career when they've been working for 10, 15 years, but still have another 10, 15, 20 years to go. The conversation changes David and Sarah weren't under saving. They were over concentrated in their retirement accounts. Their wealth was almost entirely in accounts designed for 60 and beyond, which meant that even though they were wealthy on paper, they didn't feel like they had flexibility in their life. And again, this is not an uncommon situation. It's something I see all the time as we continue talking. David. It said something that struck me. It feels like the plan only works if we keep doing exactly what we're doing, and that's the trap many high income earners fall into when you're, when all of your wealth lives in retirement accounts, your plan assumes something very specific. You'll keep earning the same income for another 15 to 20 years in their scenario without any major changes. But life rarely works that way. I say this all the time, think about your life five years ago. And what it looked like and think about what it looks like now and likely there are some significant differences. And likely if you fast forward five years, there's gonna be significant differences in into the future, right? So careers evolve, kids grow, stress levels change, change. Where you live changes, whatever that may be, right? Relationships change. So the, the goal of wealth isn't just to fund your retirement, is to give you options along the way, and that requires money in places that are outside of your retirement accounts. At a certain point, the financial question changes. Early in life, the question is, how do we accumulate money? As you start to accumulate that money later in life, the question becomes, how do we position that money? How do we structure that? Money? Accumulation focuses on quantity, positioning, and structuring focuses on flexibility. David and Sarah, the shift wasn't about stopping retirement contributions. It was about coming up with a broader strategy about building their brokerage investments, creating more liquidity for themselves, and developing a pool of assets that could support their life transitions before retirement accounts. As we were wrapping up the meeting, David said something interesting. So the goal isn't just to have enough money to retire, it's to have enough flexibility to make choices. Exactly. That's exactly what we're talking about. Financial freedom doesn't always mean quitting work. Sometimes it's simply means knowing that if life changes, you have options. I always joke with my clients that are close to retirement that probably could retire. They're just working a little bit longer for whatever, X, Y, Z reason. I always joke with'em. I say, make me mad and I can retire tomorrow. Right? So if something just makes me mad, I can retire tomorrow. Having that peace of mind is obviously very emboldening and and people like to know that they have the power to, to have those options, right? So maximizing your 401k is an ex is excellent advice, generally speaking, right. But if you're making around$400,000 a year more, it shouldn't be the entire strategy because retirement accounts build future security. But flexibility builds peace of mind for today, and the real goal of financial planning isn't reaching retirement. It's about building a financial life that supports the way that you want to live along the way. So if you want help building and structuring your financial life to give you that flexibility along with. Saving for retirement and meeting other financial goals, you can always go to my website, palm valley wm.com and, look at my process, the Palm Valley Pathways, the process that I've built to help many high income earners build and structure their life to give them more of that flexibility that we talked about in this podcast episode. So if you like the structure of the podcast, better than what I have been previously doing, let me know, if you like this better, and I'll continue to do that. And, we'll see you in the next one. This podcast is not meant to be financial or investment advice. Please not do not make decisions solely based on this podcast alone. Please seek help when considering your own situation.