Most people earning $100K or more are making this huge 401(k) mistake

Saving just 6% will likely not get you the salary replacement you need in retirement if you make a high income.

Saving just 6% will likely not get you the salary replacement you need in retirement if you make a high income. – Getty Images/iStockphoto

If you earn $100,000 or more and you aren’t saving more than the amount of your company’s matching contribution, you’re going to start falling behind and might never be able to catch up.

Down the road when you retire, you’ll have far less than you need to replace your income and stay at your same standard of living.

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Most high earners are not paying attention to this, however, until you get to incomes above $500,000. According to retirement plan data, there’s a vast swath of people making $100,000 or more that are not contributing as much as they can. Vanguard’s latest “How America Saves” report says that only 14% maxed out their contributions in 2023 when the cap was $22,500 (the maximum amount was raised to $23,000 in 2024). Of those, 53% made more than $150,000 a year.

Those over age 50 can contribute an extra $7,000 as catch-up contributions, but even fewer do this. T. Rowe Price said in a spring report that catch-up contributions for those over 50 — an extra $7,000 allowed — actually went down in 2023 for the first time in 10 years, to 14.7% from 16%. “It’s something we have to keep our eyes on, but I wouldn’t consider one data point as the start of the trend,” said Rachel Weker, head of marketing and client experience for retirement plan services at T. Rowe Price.

What this dip in catch-up contributions said to Karen Smith, senior fellow at the Urban Institute, is that maybe inflation and other spending caught up with people temporarily and they reduced their contributions. Also, people might not have caught up with the boosts to the caps for inflation. These people might think they are contributing at the max, but if they haven’t adjusted their contribution level, they might be falling short. It’s an easy fix once you are aware of it.

Smith has worked on studies of the behavior of 401(k) participants making maximum contributions, and has found that income is the main determinant of saving the maximum. Saving $30,000 from a $100,000 salary, would be 30%, after all, and that’s a huge amount to ask people to defer. “The pattern is clear: The higher income, the more you save,” she said. But not even all high earners save at the maximum rate, and that’s where the math problem comes into play.

Source: Urban Institute calculations from Form W-2 Individual Information Returns.Source: Urban Institute calculations from Form W-2 Individual Information Returns.

Source: Urban Institute calculations from Form W-2 Individual Information Returns. –

Percentages versus real dollars

Most data and messaging about contribution rates is in percentages. Vanguard calculated the average contribution rate at 7.4%, helped vastly by automatic enrollment over the years. The average company match is 6%. The higher you go up on the income scale, the higher the contribution rate, but the average contribution rates for all workers top out at 9.2%, and that’s for those making between $100,000 and $149,999. Vanguard found that those making more than $150,000 actually contribute less, on average.

But then there’s a disconnect in retirement language, and we tend to talk about retirement account balances and retirement spending in dollar figures. Vanguard, for instance, said its general recommendation was to save 12- to 15% of your annual salary, including any employer contributions, for retirement. But that’s with the added caveat that specific advice should be unique to each individual’s situation. Also people are often told they need to save enough to replace 70-80% of their income— another percentage goal instead of a dollar one.

Personalized communications that do the math for people can be very effective. T. Rowe Price’s Weker said, “You have to see the dollars out of the paycheck, that’s important to people, you have to make it real, and break it down into manageable dollar amount.”

If you do some of that math, even simplified, you can see that if you make $100,000 and save 6% — that’s only $6,000 — you aren’t going to be able to replace enough of your income in retirement. If you take a growth rate of 7%, and a 22% tax bracket, you’ll be saving $6,000 a year and will have $83,000 after 10 years. Bump that up to the current maximum contribution of $23,000 and you will have $318,000 saved in the same time span. At retirement, that will be the difference between having pennies per month to spend or having thousands. You can get help personalizing these numbers from a financial adviser or your plan administrator, or use an online calculator (I used ADP’s “How much can you afford to contribute” calculator.)

The math can come as a shock to people who have been anchored for years at a contribution rate of 6% or so, hearing the message over and over that you should save up to the company match. Smith said those who change jobs and reset at a lower automatic participation rate need to be particularly vigilant. If you restart at 3%, you need to be proactive and step it up immediately.

What should be drilled into high earners — especially those earning much more than $100,000 — is that they should save “at least” up to the company match, but that they should keep increasing their contribution until they hit the maximum amount. Then, if they are lucky enough to still have excess income, they should look for further ways to save for retirement tax-efficiently.

For those people, “I completely agree that 6% is not going to be enough,” said Weker. “But you also have to recognize that it’s not realistic to jump from 6% to 15%, or even 20%, to make up for lost time.”

It takes a big leap in dollars to get from 6% to the max at that salary level, about $500 difference in every paycheck. But you can do it slower over time and approach the max. The first thing to do is make sure you’re not contributing less than you thought you were because the caps went up after they were adjusted for inflation. Then either manually increase your contribution level at every raise or set it to auto-escalate every year.

“The biggest reason we hear that they haven’t increased savings is because they’re saving all they can,” said Weker. “But you can start to chisel away at that gap. Raising your contribution 1% a year is better than nothing, but if you can do it, pick a bigger increment like 2%.”

Since that’s pretax money, you might not even notice the difference much now.

Got a question about investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write to me at . Please put “Fix My Portfolio” in the subject line. You can also join the Retirement conversation in our .

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