How Much Should High Earners Be Saving? (And Why a $1M Year Won’t Make You Rich)

If you’re a high earner, one of the most important—and most overlooked—questions is:
 How much of your income should you actually be saving?

In this episode, we break down the real difference between earning a high income and building wealth—and why those two things are not the same.

Using a simple (but eye-opening) example of a $1 million income year, Carla walks through how taxes, spending, and lifestyle creep can quickly eat away at what feels like “life-changing” money. 

From there, she covers:

•  How much high earners actually need to save (and why 10–15% may not be enough) 
•  The difference between short-term savings and true long-term wealth building 
•  Why maxing out your 401(k) alone isn’t sufficient for many high earners 
•  Retirement savings benchmarks by age—and how to interpret them 
•  How to tell if you’re on track, behind, or ahead 
•  Why a real financial plan (not just a calculator) is key to making confident decisions 

She also shares practical guidance on when DIY planning tools make sense—and when it may be worth working with an advisor.

If you’ve ever wondered whether you’re saving enough—or if your high income is actually translating into long-term wealth—this episode will give you clarity.

Transcript

SPEAKER_00 0:00

Today's episode, we are going to be talking about something that is really truly key to you high earners looking to build wealth. And that is understanding how much of your income you need to be saving versus spending and whether or not you are overall on track, behind, or ahead in achieving your financial goals, namely retirement. So I want to start this episode off with a little exercise. I want you to imagine that you are going to have one abnormally high income year. And so that we can use some specific numbers. Let's say you currently have an annual gross household income of about $300,000. And this year, you are going to have one really big year from, say, a really large bonus, maybe equity payout. You're going to have a one-off year where you are going to have an earned income of a million dollars. So I want you to take a moment and think about how much of that extra money you're going to save versus spend and what you might be spending that money on. Now I'm going to burst your bubble a little bit here and ask you, did you take into account taxes? Because I did say that this is income and it is earned income. Your take-home pay and a $1 million income is going to be roughly $600,000. Okay. So let's assume you contribute to your 401k, you pay health insurance premiums, you maybe contribute to your HSA or an FSA. After we take into account all of that coming out of your paycheck and federal taxes, Social Security taxes, Medicare taxes. If you live in a state that has state taxes, which are most states, you're going to have state taxes as well, of course, taking into account, you know, roughly the standard deduction. That again is going to be a take-home pay of about $600,000. Now, in addition to all of the fun things that you want to do with this large amount of money, we also have to take into account that you have your normal living expenses. So this is not just an extra $600,000 of take-home pay that you can save and or spend, right? Kind of do whatever you want. You've never had the $600,000 because again, you still have your normal cost of living. So in this story that we're talking about here, I said you make a gross household income of about $300,000. Now, your take home pay on that $300,000, again, after accounting for $1K, health insurance, federal and state taxes, and payroll taxes, your take home pay on that $300,000 will be roughly $200,000. Again, it's going to depend on how much is coming out of your paycheck for $1K and benefits, what state you live in, if you take the standard deduction or itemize deductions. But roughly your take home pay is about $200,000 a year. Now, if you are a family of four, it's a lot of money, $200,000. But for those of you that are in this situation, you know it's pretty darn easy actually to spend $200,000 a year. And it's actually, as a financial advisor, not unusual for many of my clients to be spending most of their take-home pay. Right. You've got a mortgage, you've got childcare. Even if they're in school most of the year, you have summers to consider children's activities, a couple of vacations, and then of course those fun, as it not so fun one-off expenses that you might have, like home repairs, car repairs. So not unusual for a family of four earning $300,000 gross to spend their entire take-home pay. So let's now go back to that $1 million year that you have with a take-home pay of $600,000. $200,000 of that is just going towards your normal lifestyle. So now we have $400,000 left. And some of you might have been thinking of things like, hey, I'm going to do that home renovation that I've been wanting to do. And we're definitely going to take a nice big family vacation. Maybe you have student loans that you want to pay off or other debt that you've just never been able to make a large payment on. And this is your opportunity. So that $400,000 is actually going to go pretty quickly for many of you that are normally living on still up compared to most Americans, a very high salary, but not this normal million dollar salary. So you might only have $200,000 left of this to actually save, which, hey, that is a great amount of money to save if you invested in the stock market over the next decade or two or three decades. That is going to grow to be a lot. But this is by no means life-changing money. And you might be thinking, well, okay, Carla, fair point. But what if I made a million dollars hypothetically, year after year after year? So you get all those big one-off things out of the way. What I see, and again, this is, of course, not every single person, but most people, lifestyle creep is very real. So you begin spending more money regularly. Yeah, you get those big projects out of the way, but maybe you want a vacation home or just to totally upsize your current home, start sending your kids to private school. Maybe you're not actually spending a lot more money, but now you know that you have the means to be able to pay for your kids one day to go to one of those elite private colleges where tuition, room, and board is nearing close to six figures right now and it's only going up over time. And so you're saving more long-term savings, yes, but not towards your retirement, putting money away for their future college, because if you continue earning this amount of money, you're not going to be getting any financial aid aside from academic scholarships, perhaps for your kids. So really what starts to happen is if you are consistently making a million dollars a year, again, you're probably not saving two to four hundred thousand dollars a year. Now, why am I talking about all this? So I just thought it would be a fun exercise to go through to really highlight the importance of being very disciplined with how much money you save versus spend, because lifestyle creep is very real. Even if you're not increasing your daily or monthly expenses, I'm sure there are a lot of things that all of us want that we would easily put a large chunk of money to use in when we do have those higher than normal income years. And again, I'm talking about this actually because a couple of weeks ago I was at a conference. It was a actually a leadership retreat and it was people in all different industries. And a man at my table and I were talking, and he was just curious. He asked me how most of my clients made their money, knowing that I work with many wealthy clients that have millions of dollars. And, you know, I thought about it at the time and I continued to think about it over the following week or so because I've had quite a long career. It's been about 18 years now, and I've worked at three different firms prior to starting amateuring wealth. And so I've worked with a lot of different types of individuals. But I have seen one really strong pattern that honestly, the vast majority of my clients never had one huge win. They didn't have necessarily a large inheritance, at least not that large relative to the money that they are already saving and investing on their own. I just for whatever reason, I've worked with very few people that have inherited their wealth. I have certainly worked with a handful of extremely wealthy clients who started and sold very successful businesses and now have a hundred million plus. But most of my clients that have grown their wealth to be millions of dollars have really just done it by living well within their means, saving and investing. Even many of my clients that were never what you know they would consider, or even we would consider high earners, just slowly, steadily setting aside a portion of their income, saving, investing, watching that money grow. And it's really key these days because the age of pensions is mostly gone. Maybe there's a handful of you out there who are going to have a pension. Very few, if any of you, are going to be able to rely on a pension. And as high earners, very little of your income is going to be replaced in retirement by Social Security. If it's even around when those of us in our 30s and 40s retire, I do believe it'll be around in some form. It'll probably be less than what current law is, or that you have to wait until an older age, until you can start claiming. It is also very possible that Social Secur may be income-based. So people with high incomes in retirement. And by that I mean not necessarily pensions, but money that you are withdrawing from your traditional 401ks and IRAs in retirement, that is taxable income when you take the money out, that you may be subject to an income-adjusted lower social security benefit in retirement. So certainly, as high earners, you need to be saving more than the quote average earner. So typical advice out there is that you need to be saving 10 to 15% of your income. And again, that is for the average person. So again, for many of you out there who are earning high incomes, because you can rely on Social Security covering a smaller portion of your required income in retirement in order to sustain your current lifestyle. And certainly, if you are behind on saving for retirement, you need to save more to catch up. And of course, if you want to retire early, so you know, before age 65, especially if you want to retire in your 50s or earlier, you're going to be needing to save a larger portion of your income now and not only save it, but make sure that it's getting invested. Now, I also want to point out that if you need to be saving 10 to 15% of your income or more, and again, emphasis on that or more, you need to make sure that you are saving beyond what you are putting in your 401k. If you are under 50 years old in 2026, the current year, you cannot put in more than $24,500 a year into your 401k, unless, of course, you are doing some non-roth after-tax contributions, which of course can be a really great tactic, especially if you are able to do mega backdoor Roths. Your employers are hopefully giving you some level of 401k match, but if you are making $300,000 a year or more, $24,500 maxing out your 401k, especially if you are a single earning household, that is, of course, less than 10%. So what you need to be doing is very consciously taking some of that take-home pay and investing it in other types of accounts, which might be a backdoor Roth. That might probably be a taxable brokerage account. So really being conscious of your spending versus savings because it is so easy to just spend the money that hits your bank account if you're not consciously saving. I think it's also really important to point out short-term savings versus long-term savings. So both are very important. Okay. And again, many higher earners out there are more or less living paycheck to paycheck. So you may not have a large amount of money outside of retirement. If you want to do that dream family vacation to Hawaii, that's gonna cost $20,000. That might be something that you have to actually save up for. And that is, of course, short-term savings. So when we say that you need to be saving 10 to 15% of your income or more, that is money being saved for retirement. So long-term savings, which again, there's other types of long-term savings like saving for your kids' college. Maybe 10 years from now, you want to upsize your house or buy a vacation house. So, you know, 10 years is usually considered long-term. But I'm really talking about making sure you're saving enough for retirement so that you can quit that stressful job one day, which hopefully many of you out there do enjoy your jobs, but many of you also likely do not. So I want you guys to be able to retire one day. So again, really focusing on long-term savings for retirement, which again does not necessarily mean only money in your 401k or IRA is retirement money. So saving money in that taxable brokerage account that is mentally set aside for retirement. Now, how do you know if you are on track, if you're good to keep saving, say 10, 12, 15%, if you need to up it, or if you can down it? Really, what I strongly urge all of you to do is to get a financial plan done. And I'll talk about this more. There are certainly some DIY ways to do it that are going to be far cheaper than gauging with an advisor. So we'll talk about that in a little bit and the pros and cons of all of that. But very roughly speaking, there are some rules of thumb. And you can easily look these up for reference if you want. Fidelity has a great study. There's there's a lot of things out there on the internet that will reference same or similar numbers. So the first one is, you know, by age 30, you should have about one times your gross income saved for retirement. So if you're making at age 30 $100,000, you should ideally have $100,000 saved specifically for retirement. By age 35, two times your annual income saved for retirement. And by age 40, three times your annual income saved for retirement. And it kind of goes up from there that by age 60 to 65, you want to have anywhere between eight and 12, eight to 12 times your income saved. And, you know, there's a lot of studies out there, a lot of different assumptions. But I think for those of you who are listening right now who are in your 30s or 40s, there are some more clear guidelines on where you should be. Now, I also want you to not at all freak out if you are not at those benchmarks, because again, those are rule of thumb benchmarks, and those are much more feasible for more quote, average earners who, you know, started making sort of average money right out of college and got those, you know, two to three percent annual pay increases each year. If you are like many of my clients and like myself, who was making a whole lot less right out of college, you know, I think my first job, gosh, was $36 or $38,000 a year living in Chicago, which I somehow lived off of, which is crazy. Anyhow, I certainly could not be putting away $20,000 a year, but I was saving 10% a year. And as your income goes up to be a higher, you likely took some very drastic and very welcome pay increases. But if you were say making, I don't know, using easy numbers, you were making $100,000 a year every single year until you were 29. And then you turned 30 and you started making $250,000, that's amazing. But we certainly would not expect you to have been able to save $250,000 by your 30th birthday if you had not been making anywhere near that for the prior several years. So just some very basic rules of thumb. Now, as I was mentioning a little bit ago, to really get a good idea of where things stand, I think it is really important to have a financial plan done. So this is something that I provide all of my clients because it's really that important. It is very hard for me to determine how aggressively or conservatively to invest my clients' money or to give them clear guidance on how much they need to spend or save or answer that question. Can they buy that house? Can they spend money on X, Y, or Z? How much more do they need to be scrapping by and saving, or can they let loose and spend more? In fact, I don't, I honestly don't know how the average person can figure this out if they're not working with a financial advisor, because it is really important to me for my clients to have that clear picture of understanding how much they can spend so that they are fully enjoying their money now when they are working busy jobs, maybe have kids at home, have a lot of stress. Yes, you can afford that nanny, you can afford that cleaning lady and not feel guilty about it, but also making sure that, of course, you're not overspending. So really important for me to help my clients find that balance. And yes, sometimes I do have clients that need to find a way to cut back on their spending. And I can be very specific with these financial planning tools and say, hey, you need to be saving, I don't know, $500 more a month or $1,000 more a month, or you could spend $1,000 more a month and still be totally fine. So using financial planning software, again, whether it's on your own or with an advisor, can give you a lot of clarity. So there are tons of quote retirement calculators out there online, which I think is a great start. They are fairly simple. The problem that I see with them is, you know, they can be great if you are within a couple of years of retirement. That can be great. For many of you, higher earners in your 30s and 40s. There are so many other goals that you likely have beyond retirement. And so you need sophisticated software that can take into account your kids going to college, buying that vacation home, buying that boat, sending your kids to private school or whatever it is, whether it's a one-off large expense or an ongoing additional expense that you are thinking of taking on, because we are human beings and most of us have a lot of financial goals that are more than just retirement. So using sophisticated financial planning software to account for all of these is really key. And again, this is something I do with all of my clients using sophisticated financial planning software for advisors. There is, however, a really great DIY option called Bolden. So that's B-O-L-D-I-N. There is a free version and there is a version that I think costs $125 a year. So very affordable. And it takes into account all these different factors and projections. So if you've never had a financial plan done, I think that's something definitely worth checking out. The one thing I would say with Bolden is just really making sure that you understand what the outputs mean and that you really understand the inputs, even things like inflation, return assumptions, because that can have a really big impact on the outcome. But if you're just kind of really big picture, want to know if you're on the right track, if you can spend more, need to save more, big picture, that can be a great place to start. Especially if you are in a situation where There are still a lot of unknowns. So a great example is you are planning on having kids, but you don't have kids yet. And so certainly we can put in estimates about how much kids will cost, childcare, food, clothes, how much your daily expenses will go up with children. But, you know, it's really hard until you actually have kids. And I say this being, you know, having kids and doing a financial plan for myself, because of course I could do it for free, having trying to make these assumptions without actually having that be part of my life and, you know, not knowing where me and my husband would be living. We didn't own a house together until we had our first child because we were living in a little apartment in Chicago, saving up for our down payment. So I don't think it's worth it necessarily to hire a financial advisor, pay thousands of dollars if you still have so many unknowns. So there are a lot of really great tools out there for you to just get big overview, big picture idea of where things stand. Working with a financial advisor to do a financial plan. And again, this is something that I do with all of my clients whose whose investments and money I manage on an ongoing basis. So there's no extra charge for it. There are certainly plenty of financial advisors out there that do projects that are a one-time plan that usually cost several thousand dollars. And there's no one right answer for anyone. And again, it can really depend on the stage of life that you are in. Now, using free software versus doing a one-time plan with a financial advisor, you're going to be able to get better interpretations of the results. The advisor is going to make sure everything is entered correctly because, you know, the output is only as good as the assumptions that you put in. And even myself, when I'm doing financial plans, I have to check all of the cash flow charts and everything and make sure that the way I entered information in the plan is actually working the way that I thought it did. Because, you know, there's always times that come up when I'm looking, really digging into the details of a financial plan and realizing it's not doing what I thought it, what I thought it was doing, what I wanted it to do. And so I have to go in and change it. So making sure that you're working with good information that is entered correctly. I think having an advisor really help you interpret the data. And even just even people that are very confident with the financial plan that they did on their own, they I find that a lot of clients just want that reassurance from an advisor who has looked at it and said, yes, this is correct. Everything is looking great. I think that is actually something that is really priceless. So making sure all the assumptions and inputs are done correctly. But I think also as an advisor, it's really helpful for me to hold my clients accountable. So often I'll make recommendations on what to change, which is again beyond just, hey, you need to save more or spend more. But should you be doing that backdoor Roth? Should you be rolling over your old 401k, taking a comprehensive look at all of their investments, looking at estate planning is also incorporated in the services that I provide my clients. So giving specific advice on all of those things, but then also making sure that my clients are implementing these recommendations and holding them accountable. So lots of times when I've done one-off plans for my clients or, you know, as a one-time engagement and they're not working with me on an ongoing basis, I really wonder: are they actually making the changes to their investment portfolio that we talked about? Are they actually increasing their 401k contributions? So I always try to hand hold with my clients as much as possible, having them share their screen with me, go online, making sure that they're making those changes to their 401ks because I think, you know, at the end of the day, we're all human and it's really easy to look at a financial plan, get some recommendations, and it's a totally different thing to actually go through and implement it and stay up with it. I also tell my clients that getting a financial plan done is usually not just a one and done thing, right? It's not like, okay, you go to the doctor when you turn 20 years old, the doctor says you're healthy, everything's in good shape, you're good to go. Doesn't mean you never need to see a doctor ever again, right? Because everything is always changing. Your goals change, your income changes, your spending changes, your situation is always morphing and changing. And even if some in some crazy scenario, your goals have never changed, your income is steady, everything is completely on track. We all know that the market just throws something crazy in there and the market tanks or it goes up a lot. And you, you know, a lot of times my clients, when the market is down, want to revisit their plan. And, you know, more practically, aside from just understanding how the market has changed their plan, I'm always going back and looking at the plan with my clients. If they're looking to say, upsize their home or buy a first-time home, how much home can they buy? Looking at the college savings plan for their kids, how does that morph over time? Anytime there's a big change, they get an inheritance, how does that change their outlook? All the things. So again, highly recommend for you high earners where rules of thumb are, you know, just rules of thumb and hard to really apply to your unique situation. I I'm a big fan of financial planning. So I hope this episode was helpful for you, and I'll see you next time.