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Mistakes High-Income Professionals Should Avoid

The 5 Biggest Mistakes High Income Earners Make
Do more with what you’ve earned.

Financial advisors for successful professionals, executives, and business owners.

If you’re considered a high-earner, congratulations. Having enough cash coming in to cover expenses, niceties, and saving for retirement while enjoying life is increasingly rare these days. Still, this isn’t to say high earners don’t have troubles of their own – but many of the problems we see in new clients tend to be self-inflicted.

These five common mistakes can wreak havoc on your quality of life today and future retirement plans – but, luckily, they’re also easily avoided. 

Assuming High Income Will Continue Indefinitely

Human psychology tends to work against us in two key areas regarding retirement planning: we tend to struggle to imagine a far-flung future (like retirement) and simultaneously operate on a working assumption that our current conditions will continue indefinitely. But when it comes to high-income earners, losing our grip on these two vital variables can be devastating. 

Research from the Bureau of Labor Statistics indicates that our wages and income tend to peak between the ages of 45 and 54, which makes sense if you think about it. The mid-50s is usually when our professional career ladder peaks for full-time W2 employees. Likewise, that age range is when business owners and entrepreneurs often start looking for an exit from the daily grind, whether in the form of a liquidity event or handing the reins to a trusted employee or family member, and taking a passive approach.

Assuming our current income levels will continue indefinitely creates a false sense of security and, more often than not, leads to the dreaded income gap in retirement. The income gap is the position we find ourselves in when, between retirement account withdrawals and social security, we don’t have enough cash coming in monthly to cover standard expenses – let alone the additional costs, like pricy healthcare, that tend to pop up as we age. 

While the income gap is manageable, it often comes at a steep cost, such as working small jobs to make ends meet in retirement. It’s far better to understand that your current income levels won’t stay the same forever and plan to mitigate the income gap today rather than manage it tomorrow.

Poor Tax Planning

As we saw, making less money as you near retirement tends to be the case for most high earners. Likewise, once you retire, your taxable income could drop to a fraction of past levels, depending on your retirement account structuring. The good news is that lower income in retirement means fewer taxes – that’s a primary benefit of Traditional IRAs over their Roth counterpart; a lower tax bracket in retirement than today means you benefit from taxable income dropping during working years and pay a lower rate on withdrawals in retirement.

However, we often see new clients with little to no effective tax strategy beyond this basic retirement account structuring during their high-earning years. That’s ultimately to your detriment – the more you pay in taxes today, the less you can stash away as savings or for retirement. Since maximizing market gains is a game of patience and longevity, keeping as much cash in your pocket (and not Uncle Sam’s) is paramount.

Luckily, a range of options exist, no matter your income status (self-employed, contractor, or W2), to help lower your tax liability today and save more for tomorrow. 

W2 employees are more restricted in creative tax management but should still consider:

  • Maximizing pre-tax retirement contributions across various account types, including 401(k)s, HSAs, and even deferred compensation plans. 
  • Carefully managing stock-based compensation. In this regard, carefully looking at your incentive stock options (ISOs) is important because receiving, vesting, and exercising are all deferred-tax events – meaning you don’t get taxed until you sell. By holding onto your ISOs long enough to qualify for long-term capital gains, you can potentially cut your tax liability by 17% or more.
    • Also, consider the ramifications of an 83(b) election to pre-pay your tax liability upon receipt of stock-based compensation if you expect its future value to dwarf its current price (as you should!).  

Contractors and the self-employed set have a wider range of tax management opportunities:

  • Your business structure (S-Corp vs. LLC) can set you up for preferential tax treatment if properly (and legally) managed.
  • You can maximize self-employment pre-tax retirement accounts like SEP-IRAs to reduce taxable income. These unique retirement accounts can lead to tens of thousands of dollars dropped from taxable income while setting you up for the best and most comfortable retirement possible. 
  • Additional tax tweaks like home office deductions, qualified business deductions, and more can further drop your tax liability to keep more cash in your pocket.  

Of course, creative tax management can be tricky, so it’s best to talk to a CPA or knowledgeable tax advisor who is closely tied in with your financial management team and understands your current position and goals. 

Investing in Illiquid Assets

Once you’ve accumulated enough assets, you want to put that money to work – and that’s a good instinct. Unfortunately, high earners often fall into a common trap that exclusivity equals outperformance. In this case, it means high earners seek out investment “opportunities” limited to those with a certain minimum net worth or income requirements – think venture capital, private equity, real estate syndication, and the like. 

Unfortunately, though big-name alternative investments capture the headlines and attention, the reality is that most of these illiquid investments underperform compared to standard stocks. Even the most well-known fund managers may be unable to beat the market – Bill Ackman’s Pershing Square hedge fund returned 13.2% annualized between 2012 and 2023, while the S&P 500 returned 13.7%. 

Not a huge difference – until you account for Ackman’s management fees and the opportunity cost of keeping your cash tied up and restricted, as is often the case with these types of investments. After factoring in those variables, it’s clear that sticking with the basics is best! In fact, actively managed small-cap value portfolios (a lynchpin of our strategy at Bull Oak) outperform private equity investments and the S&P 500 by an order of magnitude over sufficiently long timeframes. 

If you do decide to diversify into alternative investments, make sure you do sufficient due diligence. That goes beyond basic historical returns and fee structure – ensure you know the depths of the investment type, the nuance involved, and the possible risks. Many alts are complexly structured and opaque to outsiders, so working with a third-party expert to evaluate options is usually best. And, if nothing else, ensure you’re keeping enough of your net worth liquid to address emergencies, your long-term goals, and even dollar-cost averaging opportunities in standard stocks! 

Investing in Illiquid Assets - Mistakes High-Income Professionals Should Avoid - What to Avoid When You Earn a High Income

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Financial advisors for successful professionals, executives, and business owners.

Overworking and Underspending

Overworking and underspending are the fourth and fifth biggest mistakes we see high earners make as they near retirement, but they’re so closely linked that it makes sense to look at both from a single lens. 


It’s easy for high earners to fall into an overworking mindset. In many cases, that mindset created the conditions to propel you into high-earner status! Unfortunately, it’s tough to break that mindset as we age toward retirement but do so at our own peril. 

One case study, of sorts, comes from early in my career but stuck with me to the point that I can’t go just a few days without thinking back upon it. An early client, a renowned heart surgeon, consistently worked 60+ hour weeks for decades. He had quite the nest egg built up at retirement and, as a divorcee, planned to rekindle a regrettably neglected relationship with his two daughters.

If you have a sense of irony, you may guess what happened next – he died just months after retirement, leaving those daughters with a healthy inheritance that paled in comparison to the treasure rebuilding a relationship would have offered. This isn’t a one-off or unique case, either. Studies show that mortality rates spike in the few years immediately following retirement. 

This isn’t to discourage retirement or act as doomsayers – just the opposite. Instead of overworking in the decades leading to retirement, take a step back occasionally and reevaluate your work/life balance. Pushing yourself to the ragged edge to maximize retirement savings won’t do much good if you don’t live long enough to enjoy it afterward.

Overworking and Underspending - Mistakes High-Income Professionals Should Avoid - What to Avoid When You Earn a High Income


Conversely, maximizing your retirement and savings to the point where you can’t enjoy the fruits of your labor today is an equally common pitfall. Especially among the self-made set, who may have faced significant financial insecurity in childhood, the save save save mindset dominates to the point where clients live in effective austerity despite earning well above what’s considered comfortable. 

Instead of focusing solely on saving as much as possible, take a step back and look at the data. How much are you saving? What’s your savings rate (savings divided by net income)? We generally recommend 25% as a lofty but practical goal, but we often see those with an underspending mindset stashing away as much as 40% or more toward savings! While that’s great, remember the story of our heart surgeon – enjoying your high-income today doesn’t have to come at the expense of quality retirement later.  

High Income Doesn’t Mean High Risk

If the prospect of running into unknown and unseeable risks resulting from higher income worries you, it shouldn’t. While each of these can be problematic on their own and devastating together, the reality is that they’re also equally addressable, avoidable, and correctable if needed. 

The hardest parts of avoiding each of the pitfalls are twofold. First, recognizing and psychologically adjusting to their impact in your life is harder than you may think, particularly if you (like many of our clients) are the first link in a chain of growing generational wealth. 

Second, having the time and energy to remain vigilant and knock each of the mistakes down as they arise is rare. You likely burn the candle at both ends during work and in your personal life; few high earners get where they are by not devoting countless time and attention to their craft. Worrying Am I underspending or How can I better optimize my tax strategy constantly can be exhausting and detract from your true mission – making money and enjoying life. That’s why we recommend working with a full-service financial advisor to help offload the mental burden and mitigate tricky psychological sabotage you may not even know exists. 

If you’d like to talk to a financial advisor to see if it could be a good fit for you, schedule a call here.

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