By Chris Hogan
The joy in their voice as they talk about their plans to travel the world or be outrageously generous in retirement is contagious! That’s what having a big nest egg gives you: the chance to dream big in retirement.
Do you want to know how they did it? First off, they’re probably not financial wizards. They don’t have some secret formula to retiring well. They don’t watch the stock market every minute of every day or have complex portfolios.
They put money in their retirement accounts every single month, year after year. They’re responsible spenders and intentional savers. And they’ve also used the help of a qualified professional along the way. It’s really not that complicated!
So what does that look like in everyday life? What are the real secrets to saving for retirement successfully?
Let’s look at some real-life habits and characteristics of retirement-savvy people.
1. They Understand That Their Income Is Their Biggest Wealth-Building Tool.
Smart investors take advantage of their biggest wealth-building tool: their income. That’s right! No matter how large or how small their household income is, they give every dollar a purpose. They also steer clear of debt because they know that living debt-free gives them the freedom to do more with their money—like plan for the future.
2. They Make A Monthly Budget—And Stick To It.
They know how much they spend on groceries, dinners out and new clothes. And if they run out of coffee money before payday, they drive past the coffee shop to avoid overspending—even if it’s just a couple of bucks at stake. They know the small, everyday choices make the biggest difference in the long run.
3. They Invest 15% Of Their Household Income.
After they pay off all their debt (except the mortgage) and save three to six months of expenses, smart investors allocate 15% of their household income to retirement. In our National Study of Millionaires, almost half of millionaires (48%) said they saved 16% or more of their income each month!
By investing at least 15% of their income, they’re able to make real progress toward a secure retirement while still working toward other financial goals like saving for their kids’ college and paying off their mortgage.
4. They Have A Long-Term Approach To Investing.
Informed savers don’t play checkers with their investments. They don’t jump from one investment to another in reaction to or anticipation of stock market changes. That’s because they have a long-term approach to investing. They understand that mutual funds with a solid history of growth are historically a great investment choice to stick with for the long haul. So stay focused and stick with it!
5. They Have A Plan, And They Update It As Needed.
People who are good with investing know where their money is going and how much it’s growing. They keep tabs on their investments through annual check-ins with an investing professional. They also meet with their pro after big life changes like a new baby, job transition or family move to review the potential impact to their savings plans.
6. They Work Together With Their Spouse (If They’re Married).
Couples who are on the same page when it comes to money are more likely to win with investments. They work as a team and win as a team, deciding together on their money goals and how they’ll reach them. And many financially successful couples aren’t just focused on getting ahead—they’re also fueled by a mutual desire to be generous.
If you’re single or newly single, you’re not off the hook! Find an accountability partner—maybe a close friend or trusted family member—who will encourage you and keep you focused on reaching your financial goals. You can’t do this alone!
7. They Don’t Borrow From Their 401(K) Plans.
This is a big one. Borrowing from your 401(k) account might seem like a great way to come up with some cash for an unexpected expense. But successful long-term investors know a 401(k) loan comes with risks like potential taxes and penalties if you can’t repay the debt. Even worse, the loss of long-term compound growth on the money you borrow could add up to thousands. Don’t do it!
Retirement-minded people make sure they have a solid emergency fund in place to take care of unexpected expenses, so they can leave their retirement savings to grow over time.
8. They Buy Long-Term Care Insurance.
If you want to win with money, you need a good offense and a good defense—that’s where insurance comes in. Insurance protects your money when life happens, which is why investors with a healthy nest egg understand the importance of purchasing long-term care insurance for retirement.
A long-term illness could cost a family hundreds of thousands of dollars in medical expenses, especially if care requires a lengthy stay in an assisted-living or skilled nursing-care facility. Long-term care insurance will help cover those expenses so you don’t end up spending your retirement savings for long-term care.
9. They Live Below Their Means.
You won’t find retirement-savvy people spending more money than they make. Nope! They buy modest houses and pay cash for vehicles and vacations. This leaves enough money to stash away for retirement. They don’t need the latest and greatest gadgets because they don’t care about keeping up with the Joneses. They are content with what they have and focused on their financial goals, which helps keep their priorities in check.
10. They Meet Regularly With An Investment Professional.
Wise investors know that a qualified professional is worth their weight in gold. In fact, 68% of the millionaires we talked to said they worked with a financial advisor or investment professional to achieve their net worth.1
Having someone in your corner to help you choose the right mutual funds for your portfolio makes a huge difference. Saving for retirement is too important to do on your own, people!