High Earners Are Betting They Can Do Better Than Maxing Out Their 401(k)s

Some high earners make enough money to max out their 401(k) retirement plans — but they’re choosing not to. 

According to a recent Bloomberg report, some high earners are questioning whether they should invest heavily in their retirement savings plans. Armed with online investing advice, some are betting that they’ve found a better way to save. 

One of these investors is Charlie Dice, whose job is helping farmers and ranchers obtain federal loans. For nearly a decade, Dice followed the retirement playbook and kept feeding her 401(k). At 39 years old, with roughly $500,000 saved in a 401(k), she’s decided she can ease off.

Dice wants to retire early, and she doesn’t want to wait until she’s 59.5 years old to catch up. She plans to slash her 401(k) contribution from 20% of her pay to 5%, securing the full employer match while steering the difference into a brokerage account and Roth IRA. Her goal is to build a pool of savings she can tap earlier without withdrawal penalties.

“People, especially my generation, need to not box themselves into one way of thinking because that’s what our parents and grandparents did,” Dice, who lives on a farm outside Lancaster, Pennsylvania, told Bloomberg.

Investors are looking for better ways to grow their money

Dice is part of a group of savers questioning the traditional financial advice to max out your 401(k), take the tax break and let compounding work. Some fear higher taxes in retirement will undercut today’s savings. Others want more control over their investments and access to their money before retirement.

For some, the strategy has worked so well that they’re ready to put new savings elsewhere. Fidelity’s tally of 401(k) millionaires hit a record 769,000 in the second quarter, up 19% in three months.

For Dice and savers like her, the question is where to invest their next paycheck. They are turning to brokerage apps and consulting a flood of online investing advice to look beyond the 401(k). The goal is to build wealth with fewer strings attached. 

When maxing out isn’t the goal

Most U.S. workers can put up to $24,500 into a 401(k) this year. However, fewer high earners are going all in. Among Vanguard participants making at least $150,000, 51% maxed out last year, down from 60% in 2018, according to the firm’s annual How America Saves report. For those earning $100,000 to $149,999, the share fell to 10% from 22%.

Vanguard says fewer high earners are maxing out partly because the savings limit has risen. A worker making $150,000 had to put about 12% of their pay into a 401(k) to reach the limit in 2018. Today, that same worker would need to save roughly 16%.

Retirement experts told Bloomberg that more people are putting less into their 401(k)s to try other investments that could potentially earn more. 

“We need to be more sophisticated than just max it out,” Craig Copeland, director at the Employee Benefit Research Institute, told Bloomberg.