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Why 20% of Top Earners Get More Out Of Their 401K Plans

We all hate it when someone is getting what we're not. Go ahead you can admit it. None of us likes it when someone is using or doing what we are, and getting more out of it. They're no smarter or richer than we are. But somehow they manage to live it up at work, at home or in their relationships.

You've been taught since you were knee-high, that there are the "haves" and the "have-nots." Have you ever wondered why that is?
I used to think it was because they were born into it or it was inherited. Over time I realized a few things. One is that the "haves" managed their money better than I did.

The second one I learned more recently. Did you know that 20% of the top earners in our economy get more tax breaks than the rest of us? Nope, they don't have a rich uncle who works at the Federal Reserve. And I assure you none of them is a financial genius. These folks have one habit lower and middle class earners don't exercise.

If you learn this habit and stick with it money for your retirement will come quicker and be more plentiful.

Welcome To The "Top 20" Club

This isn't an exclusive club. You could join it at your leisure. These are the group of folks who make $80K or more per year. Like you I know plenty of folks who make this kind of money, but don't have squat to show for it. But there's a group of them who do. These folks take their retirement seriously. They understand that one day they won't work forever. They need to have enough money to live and enjoy those golden years.

Uncle Sam gives us a few gifts each year. These come in the form of tax gifts. One of them is a 401K tax deferment. When you put money into your 401K, Uncle Sam won't yank it away in the form of taxes. You can safely build your retirement nest egg until the day you decide to hang it all up. This is one of the few times you can grab a pair of palm-palms and cheer for Uncle Sam!

The more you invest into your 401K the faster it grows. And the more you have for your retirement. The top 20% of earners in the U.S. simply put more into their 401K. Look at this.

If you only invest 5% of your paycheck each month it will grow handsomely. But if this percentage stays the same you may not have enough for retirement. Members of the "Top 20" Club invest 10% or more into their 401K.

Going For the Gold

I'll never forget watching Michael Phelps steam rolling the competition to win 8 straight gold medals. This is the same mentality members of the Top 20 Club uses for growing their 401K's. They don't see retirement as some goal in the distant blue yonder. Instead they know it's a reality that will hit them sooner than they think. Let's see what 10% or more of their monthly paycheck does for them.

401K Balance: $2,000
Yearly Income: $80,000
Salary Increase: 3% a year

401K Investment: 10% per month
Employer Match: 50%; up to 6% of salary
Years to Fund: 20
Average Interest Rate: 9%

Year 1 Balance: $12,904.87
Year 20 Balance: $690,146.37

If they listen to their Financial Planners they'll easily hit the seven figure mark! If we pop in 15% for a monthly investment the year 20 figure comes out to $953,649.16. For the real heavy hitters a 20% investment brings them to $1,217,151.94, after 20 years.

Hey, pal I'll take a silver or a bronze!

Look, I'm not asking you to ignore your financial realities. I'm certainly not trying to compare you to higher earners. But I'll say this. We all have two things in common. We're getting older and need more money for retirement. Unlike most places and people, time does not discriminate. You don't have to invest up to 20% of your income for your 401K. You can have plenty of money for retirement investing just 7-10%.

To play it safe, here are a few things you can do to get rolling.

Set a Goal
If you're investing just 3% of your paycheck each month, set a new goal. This percentage is fine when you're first starting out. You want to see if this baby will work. But have a long term percentage goal in mind. It's realistic to set a 10% goal for your 401K. Once every two or three years bump up your 3% contribution. With proper planning and the right investments, you'll have more than enough for retirement.

Financial Planning
I'll preach this till the day my fingers fall off! Meet with a Financial Planner. You'd be shocked at how they can help you grow your 401K. I don't care what a captain can do for a ship. That puppy will never see port without the Navigation Officer. You'll never reach the retirement dollars you need without a Financial Planner.

Stay At Your Job
It's rare to have a job you love. Sometimes you dread getting up in the morning. But in this economy, be glad you have a one. There are at least 1.2 million people without one. Stay where you're at and grow. You'll be more than pleased when you retire. This will allow your 401K and compound interest to build.

Kill Bad Financial Habits
You heard me right, kill em! Debt, early withdrawals and impatience will drain your 401K. Do a Google search and you'll find plenty of help in this area. Good financial habits will lead you to the 401K promised land. Meaning you'll learn the financial habits needed to build wealth.

In closing I know it's tough out there. Most of us don't pull down $80K or more per year. We don't have the benefit of putting 10-20% into our 401K each month. Instead you might be making $40K or less. Most of that money keeps the heat on, food on the table, a roof over your head and clothes on your back.

But no one can shake the reality of aging. From a financial prospective, you've got to start planning and investing now. If not, you'll find yourself working at a time when you deserve to play!

Clyde McDade is a Financial Copywriter. He can be reached at

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