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You’ve Maxed Out Your 401k – Now What?

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You’ve maxed out your 401k – now what?

Current figures indicate that just 12% of Americans max out their 401k1, but if you’re anything like the people I speak to on a daily basis, you already are and you’re wondering what’s next.

In 2022 the 401k limit increased to $20,500, and here’s the truth of the matter: if you’re used to making a six or seven figure income and living an abundant lifestyle, that’s not that much money to save annually for retirement.

In addition to this volume concern imposed by the IRS contribution limit, inflation has also been on the rise, up from 3% to 6.8% in 2021.

So having $3 million dollars in your 401k at retirement might seem fine today (and normally achievable if you max out your 401k for 30 years with an average S&P return), but 30 years from now it’s going to buy a lot less than it can today.

If inflation averages just 4.97% per year, in 30 years from now $3,000,000 would only purchase $700,000 worth of goods.

The Formula


FV = PV x (1+I)^N


FV = Future Value

PV = Present Value

I = Interest Rate

N = Number of Periods

Using this formula,

$3,000,000 = PV x (1 + 4.97%)^30

PV = $700,000

So you see that classic old people question “Why is everything so expensive?” isn’t born from nowhere. It’s because inflationary pressure is very real and can significantly reduce your purchasing power over time.

Now, can you see why maxing out your 401k alone is not enough?

It is not a retirement “silver bullet” solution to take care of yourself, and by checking the box and funding the account with each paycheck you are not all set.

It’s for this reason that the wealthier clients we have usually have no more than 20% of their wealth in their 401k.

Of course, they max out their 401ks, however, they also leverage additional investment vehicles without volume restrictions to increase their retirement income streams.

This should be done with foresight, looking out as far as possible ahead of when you plan to retire.

Here’s a little-known solution to help you raise your retirement floor once your 401k is maxed out: Life insurance

For high net worth and high-income earners, life insurance has historically served as both a death benefit and a retirement supplement for people who have maxed out their 401ks.

Knowing that saving only the IRS 401k limit is not enough to live on, they seek other tax-advantaged vehicles to utilize for the long run.

Since it is nontaxable, life insurance can work not only for financial protection but also as an effective investment vehicle if the fees in the policy are less than the fees and taxes would otherwise be in an alternative taxable investment (e.g. a traditional brokerage account).

Your extra money has to go somewhere, and the idea is to save where it will be insulated from taxes.

The more you save and the longer you save it, the more striking the tax benefits become.

Given enough time and money, the value spread of a cash value life policy can be leagues ahead of its taxable alternative.

There are three key benefits to using this strategy:

1. You’re supplementing volume

Perhaps most importantly, you can put as much as you want away in these vehicles without IRS contribution limits and grow it in a tax-advantaged manner for the long run.

2. You’re tax diversifying

As long as you follow the IRS MEC guidelines, whatever you’re contributing into a life insurance policy will grow and distribute tax freely. This is a fantastic complement to your traditional retirement accounts (401k, IRA, etc.) which are typically taxable at your ordinary income tax rate.

3. You’re risk diversifying

Some insurance accumulation strategies can grow your money on a guaranteed upward trajectory, not correlated to the volatility of the stock market. This allows you to distribute income more aggressively because of its predictable growth trajectory — a straight line up. There is no asymmetry of return risk in this account, and therefore there is no risk of selling when the market is down, which makes it a powerful supplement to maximize income when coupled with your stock market exposed accounts.

For example, if you already have $116,000 in your 401k at age 35, and you continue putting away $20,500 a year (the maximum IRS current annual allowance) for another 30 years with an average growth rate of 7.3%, you would have $3,004,570 by the age of 65. This inflation adjusts to $651,035.01 (assuming an inflation rate of 4.97% 30 years from now). At a safe distribution rate of 4% this will generate $28,047 per year or $1,519 of post-tax income per month (assuming a tax rate of 30%) from age 66 to age 90.

If you also put away $35,000 into a tax-advantaged insurance strategy every year from the age of 35, the future value at age 65 could be $2,023,640 (assuming a 6% dividend). And it’s all tax free. Inflation adjusted this becomes $701,175, which equates to an additional $2,722 post-tax income per month from age 66 to age 90 to supplement your 401k. Beyond the income spread, there is an ancillary financial benefit from the insurance for your beneficiaries that also boosts your return per unit contribution.

If you’re only maxing your 401k you may have only $1,519 per month. If you supplement your 401k now, you could have $4,241 per month – which do you prefer?

As mentioned, leveraging multiple strategies helps to create more volume, tax diversification and risk diversification. The wealthiest people aren’t just strategic about how much they put away — they’re also mindful of the risk and tax implications of their investments, as these are instrumental in defining your wealth building effectiveness. While the average person will only leverage their 401k, the smart investors will leverage their 401k and other tax insulated vehicles to grow their money over time. If you’re in the top 1% of earners, don’t make the investment choices of the masses. Make the moves of your peers so your wealth can truly stick around for both you and your future generations.


Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate. MICHAEL HANNA IS A REGISTERED REPRESENTATIVE OF AND OFFERS SECURITIES AND INVESTMENT ADVISORY SERVICES THROUGH MML INVESTORS SERVICES, LLC. MEMBER SIPC.WWW.SIPC.ORG. 420 LEXINGTON AVE, SUITE 2510, NEW YORK, NY 10170, (212) 578-0300.