You may be surprised to learn that wealthy Americans spend less on food (4.8%), housing (2.3%), clothing (-3%), and transportation (4.2%) than low-income earners (food 7.1%, housing 9.3%, clothing 9.2%, transportation 23.2%). At the same time, this group invests more of its income in its future compared to individuals in low-income brackets. Low-income groups spend more than they earn. While it may seem strange that the wealthy are more restrained in their spending habits, it might make people think about how to shape their spending habits to align with those of higher earners. In fact, this could be a great step for your retirement plan.
Changing the Traditional Retirement Plan to Benefit You
Wealthy retirees recognize that they will need to rely on more than just their traditional retirement plans to live comfortably and with a relative freedom from financial worry. It is no longer feasible to think that living off Social Security benefits and 401(k) and IRA balances will be enough for a wealthy retirement. With the traditional model, retirement income consists of a mix of Social Security and pension benefits. However, the new retirement model shows that income can be generated through real estate investments, business accounts, taxable investment accounts, bank accounts, and guaranteed insurance products.
Living Below Your Means
It has already been proven that wealthy Americans spend a lower percentage of their income on housing compared to low-income groups. Just because you can afford a lavish mansion does not mean it is the best decision for you and your future. Living in a modest home that you can pay off before retirement will ensure you unmatched financial freedom.
Spending Habits
Once again, wealthy Americans live below their means and keep their spending in check.
Tackling Debt
View your money as freedom and opportunity. Having money to pay off your debts brings a new level of comfort when you’re retired and ready to enjoy everything you’ve worked hard for. Strong savers can put away 20% of their income into savings, and if they pay around 30% in taxes, half their income remains for living expenses. A 2020 study from the Consumer Financial Protection Bureau found that 55% of retirees who had paid off their debts and were claiming reduced Social Security retirement benefits managed to maintain the same level of spending for five years after retirement. Always remember that the purpose of saving and reducing your debt burden is to put you in a position where you can do what you want in retirement, whether it’s traveling, pursuing your passions, or spending time with family.
Identifying Investments
Wealthy retirees tend to own a diverse array of investments and income streams rather than just traditional retirement plans. You may have trouble identifying the types of investments that appeal to you. To help, first decide what kind of life you hope to live when you enter retirement. Would you like to manage rental properties? Do you wish to continue part-time work or freelance? The answers to these questions will help you identify some additional income streams you can pursue as a retiree and the types of investments that will work for your lifestyle.
The Busiest Retirees Are the Happiest Retirees
A study by Merrill Lynch and Age Wave in 2013 found that 68% of those who will retire wealthy plan to work in some capacity after retirement. Another study published in 2021 by Edward Jones and Age Wave found that retirees who enjoy a “higher quality of life” are more intentional about maintaining good health, viewing retirement as a “journey” and an “exciting new chapter in life.” Pursue your hobbies, enjoy your grandchildren, and set your goals.
Don’t
Being wealthy in retirement can be challenging, and by modeling some behaviors of higher-income earners, you too can be on the right track.
Source: https://www.thebalancemoney.com/how-to-pave-the-way-to-a-wealthy-retirement-1289922
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