Why A High Income Doesnt Guarantee A Nice Retirement

By: John Ludlow, CFP®, Vice President, Senior Financial Planner
Success in your career may be rewarded with a high income among other benefits like making a difference in people’s lives, finding happiness in doing what you love, and carrying on the family business. 

Two business people talking in a conference room
Regardless of how you define career success, many of us want a satisfying career that also maximizes the amount of income we earn during our working years. Does it mean we will join the millionaire club somewhere along the way? You may be surprised at the answer. 

The numbers spin a great story of where hard work, education, drive, discipline, and opportunity can get you in life. But how does it end? Does a high income during your working years translate into a prosperous retirement? It might. 

While it’s certainly nice to have, it’s what you do with that income today that makes the difference between a retirement free from financial stress and one where you struggle to make your money last through your lifetime. Here are some tips that may help you get a snapshot of your financial future.

How Many Millionaires Are There?

WHAT YOU EARN VS. WHAT YOU SPEND
First, it’s important to take a close look at what you earn, what you spend—and what you save. Earning a lot of money makes it easier to spend a lot of money, especially in your younger years. A nice home, vacations, private clubs—not to mention splurges like custom cars, boats, and planes—can be expensive temptations. You’ve worked hard and may want to enjoy the finer things in life.

But when it comes time to support this lifestyle in retirement, will you be able to continue your current spending habits and lifestyle when you no longer have a salary to fall back on? If you don’t set aside a portion of your money now to build your nest egg, your savings may be sorely lacking when it comes time to support the lifestyle you’ve grown accustomed to in retirement. This is a common trap that high wage earners fall into—it’s easy to convince yourself that a continued high income will be available to you in retirement when you have to make your own paycheck from your savings and investments. Unfortunately, many wealthy people don’t save enough when they’re young then find themselves unprepared for retirement in later years. 

EVALUATE YOUR LIFESTYLE 
If you’re ready to plan for your retirement, take a comprehensive look at your current lifestyle. Track what you spend each month. Where does your paycheck go? Do you have—and stick to—a budget? How much money are you spending on necessities? How much is spent on things you want vs. things you need? Most important, how much do you save for an emergency or invest for your retirement years? You may discover you have a better idea about the money you have coming in than you do about where it’s going after it hits your bank account. But coming to terms with your actual expenses is the first real step in preparing for your future. 

SEEK ADVICE FROM A TRUSTED SOURCE 
Now that you understand what you spend, ask yourself, “Can I keep this up my whole life?” Hopefully, the answer is a resounding, “Yes!” But what if it isn’t, or what if you have doubts and just don’t know? If that’s the case, seek advice from a trusted source. Work with a Financial Planner to create a plan to determine how close you may be to achieving your goals and learn what steps you can take to give yourself the best shot at a financially successful retirement. 

SOCIAL SECURITY AND YOU—THAT’S IT 
It’s always important to keep in mind that today’s typical retiree will have Social Security income or a comparable pension from the federal government, but no other sustainable income source. As nice as it is to have Social Security to depend on, sadly it’s not enough money to support most individuals’ lifestyles during their retirement years. With private pensions in drastic decline over the past few decades, most retirees must make up this difference in income on their own. The only way this can be done effectively is to delay some gratification today and dedicate as much income as you can afford to proper retirement savings vehicles. 

INVESTMENTS MATTER—AND SO DOES LIQUIDITY 
Remember this: What you invest in is as important as how much you save. Most investments you make to support your future retirement should be a mix of stocks, bonds, and cash. This is very easy and convenient to do with retirement vehicles such as a 401(k) or an Individual Retirement Account (IRA). The proper mix of these investments for your financial needs will depend on your age, risk tolerance, and number of years to retirement. Other investments such as hedge funds, private equity, and even real estate can sometimes harm a retirement plan because of their illiquid nature—and may add to your expenses over time. 

DON’T LOSE SIGHT OF THE ULTIMATE GOAL 
Successful retirement plans are affected by two different criteria: expenses and retirement date. Simply put, the less you spend and the longer you work, the more successful your retirement plan. However, both criteria can lead to very emotional decisions. Contact us today to learn how Commerce Trust Company can help you evaluate your current cashflow and create a plan for living the life you want now and the one you dream of in the future.

¹Source: Millionaire Foundry, “42 Best Millionaire Statistics, Facts, and Resources for 2020,” Copyright 2015-2020, Millionaire Foundry, https://millionairefoundry. com/millionaire-statistics/ 
²Source: Spectrem Group, Market Insights Report 2019, “10th Consecutive Annual Increase in Wealthy American Households” Press Release, Chicago, March 12, 2019. 

The opinions and other information in the commentary are provided as of January 19, 2021. This summary is intended to provide general information only, and may be of value to the reader and audience. 

This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such. 

Past performance is not guarantee of future results. Diversification does not guarantee a profit or protect against all risk. 
Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. 


Commerce Trust Company is a division of Commerce Bank. 

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
 

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ABOUT THE AUTHOR

John Ludlow, CFP® Vice President, Senior Financial Planner Commerce Trust Company 
John is a financial planner for Commerce Trust Company. He is a member of the financial advisory services team, a dedicated financial planning practice within Commerce Trust that provides objective financial advice to clients.

Following a thorough assessment of a client’s unique situation and thoughts regarding wealth, John develops holistic and coordinated plans to help clients meet their short-term and long-term goals as well as take full advantage of various planning, tax and investment strategies along the way.

John has nearly 25 years in the financial planning industry, working with both individual and institutional clients. John received both his bachelor of science in business management and master of business administration degrees from Brigham Young University. He has also earned his CERTIFIED FINANCIAL PLANNER™ designation.