How do you see yourself in retirement — the simple, quiet retiree who takes neighborhood walks and always gets the early bird dinner special? Or are you the carefree retiree who runs 5Ks, meets friends for champagne brunch, and takes cruises to exotic places? Both are stereotypes, of course, but they represent the difference between surviving and thriving in retirement.
Thriving may be your goal, but not every retiree achieves it. Research from Aspen Institute indicates that one in five seniors in America lives in poverty. More concerning is the prediction from Schwartz Center for Economic Policy Analysis that 40% of older workers and their spouses will fall into poverty or near poverty in their later years.
Winning in retirement isn’t solely a financial issue, either. Retirees can struggle with anxiety, depression, and mood disorders. The Centers for Disease Control and Prevention estimates that 20% of people over the age of 55 have some type of mental health concern, with depression being the most common problem.
The best way to ensure a prosperous and happy retirement? Follow the footsteps of the folks who are living the retirement lifestyle you dream of. Here are four reasons why people succeed in their senior years.
1. They planned for their purpose after work
Your job anchors you by adding structure and purpose to your week. It also provides social interaction. If you don’t replace your career with meaningful activities, you could find yourself feeling isolated and lost. And loneliness increases your risk of heart disease, obesity, and Alzheimer’s disease, as well as anxiety and depression.
Decide today what you love to do, and research part-time employment and volunteer opportunities in that area. Think about your hobbies and whether they can bring you fulfillment and social interaction. Choose a path and purpose for yourself in retirement, one that goes beyond working on your golf swing.
2. They started saving at their first job
More money in the bank means more resources for travel, hobbies, and social outings with friends. Those who start saving for retirement in their first job can accumulate six- or seven-figure balances with relatively small contributions. A Chicago man named Russ Gremel bought $1,000 of stock in the 1940s, and it grew to more than $2 million over the next several decades. A janitor named Ronald Read — who reportedly made $12 hourly from his job — amassed $8 million in assets by quietly investing for decades starting in the 1950s.
The earlier you get serious about saving, the easier it is to build wealth. Start contributing today to your tax-advantaged retirement plans. A $300 monthly contribution earning a 7% average return grows to about $157,000 in 20 years. But if you have 40 years to wait, you’ll end up with $792,000.
3. They increased their retirement contributions regularly
If your income increases, you should increase your retirement contribution correspondingly. Whenever possible, set your 401(k) contribution as a percentage of your salary — that way your retirement deposit rises in step every time you get a raise. Say you’re making $50,000 annually at age 30. If you set your contribution rate at 10% and you get an annual raise of 3%, you’ll be a millionaire by age 65, assuming your contributions are invested to earn 7% annually on average.
You could take your earnings much further, though, by increasing the contribution rate with every raise. At a $50,000 salary and 10% contribution, you’re sending $5,000 annually to your 401(k). A 3% raise increases your income to $51,500 and your annual contribution to $5,150. But, notice how your salary went up by $1,500 but your contribution only increased by $150? You could actually afford to raise the contribution rate to 12%, which puts an extra $1,030 in your retirement account each year.
4. They kept their savings invested through market swings
Janitor turned millionaire Read invested consistently even through turbulent markets. His portfolio was diversified, and he held on to positions for decades. Read didn’t chase his millions — he walked toward them, step by step.
Read invested in stocks, turning to the public library to do his research. He reportedly only invested in businesses he knew and understood first-hand. Clearly, Read knew that research is a critical aspect of investing. If you don’t have time to find the ideal stocks yourself, stick to diversified, low-cost exchange-traded funds. Then, be ready to ride out rough patches in the market. If you sell every time your portfolio loses value, you only lock in losses and potentially miss out on the upswing that follows.
Thriving in retirement
Start planning early and you can create the retirement you want, whether it involves volunteering at the animal shelter, taking weekend trips to see the country, or jet-setting around the world. No matter what your retirement dream looks like, you’ll need a healthy nest egg to provide it.