Retirement planning usually starts with a simple idea: save enough money to replace your income. But there’s one big problem. As you grow older, your income likely increases. For some professions, this may follow a predictable growth pattern of say 2 to 4% per year. For others, the pattern may be more sporadic, especially if one pursues higher education such as a Masters, Doctorate, MD, etc. When your income rises, many increase their lifestyle spending, with little thought of how sustainable this may be beyond your working years.
Many Americans take on debt to support lifestyles beyond what their income supports. If you don’t adjust your retirement planning variables, savings rate, target return rate, and time horizon, to keep up with your dream retirement life, that life could become unattainable. Let’s break this down.
Why Traditional Retirement Planning Falls Short
Traditional retirement planning strategies are based on “income replacement.” This means the goal is to replace a percentage—often 60% to 80%—of your final working income.
But what if your income grows a lot over time? Here’s a simple example of income growth where the income doubles every ten years compared to one at 3% annual growth
Age / 3% Annual Growth / Sporadic Growth
25 $30,000 $30,000
35 $40,317 $60,000
45 $54,183 $120,000
55 $72,818 $240,000
65 $97,861 $480,000
This highlights two different planning scenarios. The 3% growth scenario with its constant flows allows for more systematic planning. In fact, it falls neatly inside of a structure where Social Security makes up a large portion of retirement income.
The sporadic one requires a completely different approach. While it may start with the traditional approach at age 25, you can see that it quickly varies from the 3% annual growth. Most people I know did not pursue higher paying jobs to be able to save more for retirement. I’ve found that they wanted to upgrade cars, home, vacations, and day-to-day spending. That said, they also didn’t want to suffer a drop off from enjoying these things in the future.
This is the danger of lifestyle inflation—spending more just because you earn more. Suddenly, your retirement plan—based on your old lifestyle—won’t support your new one.
Smart Retirement Planning Starts With Real Life Numbers
Instead of planning to replace a fixed percentage of income, base your retirement planning on the lifestyle you want to live in the future. When there is a spouse, what do you both want? I have seen disagreements in the $100,000’s between spouses. Let’s say that one is happy with living on $120,000 annually and the other wants to live on $240,000 annually. How much do they need to save and in what savings vehicles- 401(k), Roth, IRA or brokerage account?
Ask yourself:
- How much do I really spend each year?
- How do I expect that to change by retirement?
- Will I want to travel more? Downsize? Help family financially?
This kind of planning is more personal—and more powerful.
High Income Comes With Hidden Retirement Planning Challenges
As your income grows, it can close the door to certain tax-advantaged savings accounts.
Example: Roth IRA Income Limits
In 2024, you can’t contribute to a Roth IRA if your income is above:
Example: Traditional IRA Deduction Phase-Out
If you’re covered by a retirement plan at work, your ability to deduct IRA contributions goes down once your income passes:
IRMAA: A Sneaky Retirement Expense
The more income you show in retirement, the more you may pay in Medicare premiums—this is called income-Related Monthly Adjustment Amount (IRMAA). For example, if your income is over $103,000 (single) or $206,000 (married), your Medicare Part B and D costs go up.
🔗 Medicare 2025 Costs PDF
🔗 Medicare Cost Overview
Social Security Income Phaseout
Social Security is a supplement to many peoples retirement income. However, the income that is considered has a maximum, in 2025 $176,100. While many enjoy the reduction in taxes that comes from hitting that limit, that means that your own savings must make up for that longer being factored in. Additionally, the employer portion ends too!
High Income Earner Savings
Employer sponsored tax advantaged savings are a key element for saving. Not only do you get to save the employee max, (2025 the max is $23,5000 and $30,000 if you are over 50) but if your spouse has similar benefits, that is potentially a total of $60,000 before an employer matching or profit-sharing contribution!
There are other opportunities to save even more in tax-advantaged savings through vehicles such as tax-deferred annuities or cash-value life insurance. You can always save or invest through a taxable brokerage account, where you are not seeking a current or long-term tax advantage. Be aware that the net of the money is what you will be spending, not the gross. Tax Deferred 401(k) and IRA accounts overstate your spending power as their balances are shown in untaxed dollars which your checkbook does not.
Why This Matters for Retirement Planning
In my article, “IRA, HSA, or Roth IRA: Smart Tax Moves to Make Before April 15”, I talk about how these decisions can boost both your short-term tax situation and your long-term financial independence. The earlier you adjust, the more freedom you’ll create later.
Final Retirement Planning Thoughts
Retirement planning isn’t just about a future account balance. It’s about building a plan that ideally supports the life you actually want to live. The earlier you start to plan, you can make course corrections on your savings, and your target returns.
I strongly believe that it is worth your investment to have a designated professional, such as one that has a Chartered Retirement Planning Counselor, Certified Financial Planner credential etc, create a financial life plan that considers life as you know it today. Further, reviewing the plan on an ongoing basis is also crucial. If your income dramatically changes, your marital status or your other family statuses, the plan needs to be revised. You may have access to new opportunities at work through Roth 401(k) or incentive compensation that may make it necessary to make some significant revisions. The benefits of compound interest on your savings magnify the earlier you start.
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