Richard Pasick, a financial planner with C&A Financial Group, in Manasquan, is advising some of his affluent clients to significantly increase retirement savings by dialing back on their affluent lifestyles.
He cited one client, age 48 and earning $600,000 a year as head of a professional firm. “When I met him a year ago, he was saving $500 a month,” he said.
The client immediately upped his savings to $3,000 a month, and is now raising that to $5,000 a month, or $60,000 a year.
Where did Pasick find the extra cash? This family of four had been dining out four or five times a week, at a cost of about $45,000 a year. He advised them to dine at home more often, and take fewer expensive vacations.
“This client is also looking at his business and finding ways to be more efficient,” Pasick said. When business owners realize they have to start saving, “they look at ways to make their business more profitable, so they can make more money and save more money. They become better at their jobs, and they stop letting their money slip away.”
Pasick said a 401(k) retirement savings plan is not enough to secure a comfortable retirement for an affluent individual. Taxes are paid on the 401(k) proceeds when money is withdrawn after retirement, when the conventional wisdom holds that the taxpayer will be in a lower bracket. But Pasick said the affluent may remain in a high tax bracket when they retire.
He advises clients to save both inside and outside tax-deferred plans. The reason to save isn’t to defer taxes, he said, it’s to “enjoy life when you’re 70.”
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