High Income, Low Savings at 53? How to Fix Your Retirement Plan Before 65
A 53-year-old earning $500K has just $200K saved for retirement and two mortgages. A wealth advisor shares a strategy to retire by 65.
Question: I’m 53 and married with two teenage children. I earn $500,000 a year, yet I still live paycheck to paycheck. Despite my high income, we only started saving for retirement when I was 50. We have about $200,000 in a 401(k), which I max out annually. There is a $2 million mortgage on our primary residence and a $350,000 mortgage on our vacation property.
My goal is to retire at 65 and maintain our current lifestyle, but I'm concerned about our lack of savings and high expenses. I'm also worried about how we'll afford our children's college educations.
Answer: Living paycheck to paycheck isn’t only reserved for low earners. A 2024 Bank of America Institute Survey (PDF) found 20% of Americans making more than $150,000 live paycheck to paycheck.
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But why? If you’re making half a million dollars a year, how aren’t you saving?
For starters, many higher earners have bigger mortgages. With that comes bigger insurance costs, property taxes and utility bills. Then there's vacation homes, dining out, entertainment, membership fees, children’s activities and apparel. Add it all up, and it’s not so surprising.
"It goes to the point about lifestyle," says Julian Davis, a wealth advisor at HB Wealth. "Sure, $500,000 is a lot of money, but if you are spending $500,000 a year, then it's not a lot of money."
Face the reality head-on
For anyone living paycheck to paycheck, the first order of business is to conduct an audit and identify areas to free up money to save for retirement. Davis says in this case, a $50,000 a year reduction is necessary to retire by 65.
“At $500,000, your needs are met for sure, and you can still have a very nice lifestyle and prepare yourself for a scenario in which you won't have income.”
There are many ways to free up money, whether you earn $50,000 or $500,000. Cutting out some of your daily expenses, canceling subscriptions and renegotiating your insurance and utilities are easy places to start.
You can also cut back on discretionary spending and consider downsizing or selling the vacation home. When you reach the slash and burn part of the plan, you have to ask yourself: Would you rather have two homes and keep working until 75, or would you rather sell the vacation home and retire at 65?
Get your money working for you
Once you have your plan, it's time to execute.
Davis says to take advantage of 401(k) catch-up contributions for workers 50 and older. For 2025, you can contribute an additional $7,500 beyond the standard limit. After that, create an emergency fund with six to 12 months of living expenses.
"What if he loses his job between now and retirement, and is still living paycheck to paycheck, he has no buffer for those unexpected things?" says Davis. You can then go back and max out an IRA to get all the retirement savings tax breaks available.
After you check off all those boxes, Davis says to direct any remaining funds to a non-retirement investment account. There are many benefits, including:
- There are no annual contribution limits. You can invest as much as you want.
- You can access the funds whenever you want without any penalties.
- You can employ tax strategies like tax loss harvesting to lower your tax bill.
- A more diverse selection of investment choices.
"If he cuts $50,000 in expenses, and the money is going into an investment account and is working for himself and his family, it can grow between now and retirement and even beyond," says Davis.
Now to the education dilemma
In addition to worrying about retirement, many Americans haven't saved for their children’s education, for a plethora of reasons. That creates a dilemma, since a college degree is an expensive proposition. It can set you back on average from $29,000 to $63,000 a year, depending on the schools your children attend.
Depending on how old your kids are, you might not have much time left to save, but every penny helps. Davis says an ideal way to do it is to save in a 529 college-savings plan.
With this type of account, you get tax-free investment growth and withdrawals if proceeds are used for qualified higher-education expenses, such as tuition, room and board, books, computers and supplies. Most states have 529 plans and offer state tax deductions or credits on contributions if you use your own state’s plan.
Retirement savings come first
You don’t want to save for college at the expense of your retirement, cautions Davis. If the choice is between saving for retirement or in a 529 plan, retirement should always come first, he says.
You can borrow for school, but you can’t take out loans to cover 20-plus years of living expenses.
"If loans have to be taken, I would rather the children take the loan than the parent," says Davis. "You don’t want parents to jeopardize their retirement plans."
Seek help
If you're unsure of where to cut costs or don’t know how your money should be saved and/or invested, getting help from a financial adviser might be worthwhile.
With retirement a mere 12 years away, you don’t want to make any mistakes. Plus, if you’ve lived your entire working life paycheck to paycheck, you might need someone to hold you accountable; the financial adviser can take on that role.
Whether you go it alone or have the help of an adviser, ultimately, it falls on you to pull it off. It requires discipline and sacrifice, but it is possible.
“Be honest and intentional with yourself about what you want to achieve," says Davis.
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