What the Top 10% Save for Retirement: Key Strategies

A common rule of thumb suggests saving enough to replace 70% to 80% of your pre-retirement income to maintain your lifestyle in retirement. For the average American, it may be challenging to build a nest egg this large, but not for the top 10%.

These high-net worth individuals have accumulated just shy of seven figures in retirement funds by thinking long-term and investing consistently. Studying their habits reveals that securing a comfortable retirement isn’t about just income but also approach.

Retirement Savings of the Top 10%

According to a Northwestern Mutual survey, Americans think the “magic number” for retirement is $1.26 million. And the top 10% are on track to reach or surpass that amount.

Data from the Federal Reserve’s most recent Survey of Consumer Finances (SCF), which is published every three years, shows that the median retirement savings amount for the top 10% is over $900,000. In contrast, the median savings across all households with retirement accounts hovers at just $87,000.

These figures highlight the growing retirement savings gap between the wealthiest Americans and the rest of the population.

Proven Retirement Strategies of the Wealthiest

The retirement strategies employed by the top 10% differ drastically from those of the average American. Their significantly higher savings reflect having a higher income and a more proactive and strategic approach to retirement planning.

Tax-Advantaged Wealth Building

The top 10% don’t just save money; they use advanced financial strategies to grow and protect their wealth. They’re proactive about leveraging tools that offer tax advantages and long-term growth opportunities. With Roth individual retirement accounts (IRAs) and life insurance, they not only grow their wealth but also help preserve it by reducing their tax burden over time.

“High-net-worth individuals tend to leverage backdoor Roth IRAs, which are ideal for those who exceed income limits,” said Danielle Darling, LPL financial advisor at Resource One Advisors.

The way it works is that high earners bypass income limits by contributing to a traditional IRA and then converting it to a Roth IRA. This strategy enables tax-free growth and withdrawals in retirement.

“[They also use] cash value life insurance, which can be used as a tax-advantaged accumulation vehicle, and taxable investment accounts with tax-loss harvesting, which can be used for building wealth that is in liquid accounts for life before retirement age,” Darling explained.

With cash value life insurance, which is a type of permanent life insurance, you build cash savings and receive lifelong coverage. A portion of your premium goes into a cash value account that grows tax-deferred over time, which can be borrowed against or withdrawn while you maintain the policy.

And while regular brokerage accounts don’t offer tax advantages like retirement accounts, tax-loss harvesting is a strategy that can be used to minimize taxes. With tax-loss harvesting, you sell investments at a loss to offset gains on other investments, reducing your overall taxable income and helping manage your tax bill.

Living Below Their Means

Discipline plays a major role in their financial success. Instead of letting income increases lead to lifestyle creep or inflation, HNW individuals remain focused on long-term goals. This restraint allows them to consistently save and invest, building wealth rather than spending it away.

“They are generally better at avoiding lifestyle creep. Even with more financial means, many live below their means and prioritize saving and investing first,” Darling says.

Automated Savings

Consistency is another key factor. Even modest automatic contributions, when made regularly, can compound into substantial savings over time. This steady approach helps build momentum, ensuring you are taking even the smallest steps that can turn into significant long-term results.

“Paying yourself first by setting up automatic savings, even in small amounts, adds up over time,” says Darling.

Delayed Gratification

When it comes to HNW individuals, their mindset sets them apart. The wealthy may delay gratification, focusing less on appearances or ‘keeping up with the Joneses’ and more on financial freedom and future security. Instead of chasing short-term rewards, they make intentional financial choices that align with their long-term goals.

“Many high-net-worth individuals have the mindset of delayed gratification, where they prioritize saving now and focus on spending later. They also prioritize saving and investing over social status,” Darling says.

The Bottom Line

Achieving a secure retirement isn’t just about earning more; it’s about adopting the right mindset and strategies. The top 10% of earners prioritize long-term planning, tax efficiency, consistent saving, and disciplined spending. By understanding and applying some of these highly effective habits, anyone can move closer to financial independence and a secure retirement.