As a financial advisor, I have met with hundreds, if not thousands, of people about planning for their retirement. This group includes executives, business owners, factory workers, teachers, engineers and countless other professions.
On average, most people are failing when it comes to planning for retirement. You can point to any reason why this is the case: inflation, political risks or disbeliefs, college debt, lack of financial education, income suppression, or the area code they were born in.
But the need for retirement planning still remains. I have looked at my firm’s most successful clients and these are the five most common characteristics of how people achieve retirement success.
Work Smart, Work Long
You may have heard the phrase, “Age is just a number.” However, when it comes to retirement planning, that number becomes quite significant, especially around age 65. Why is that? There are several compelling reasons.
First, health insurance. Until you reach 65, you need to be able to afford health insurance, and if you retire before that age, the costs can be staggering. Less than 10% of our clients can carry their workplace health insurance into retirement, and even if they can, they’re usually paying full price. Health insurance can easily become one of your highest bills in retirement, sometimes exceeding $1,000 per month per individual.
The second reason is compounding interest. It’s a powerful financial tool, and here’s how it works: if you can resist tapping into your investments for the next 10 years, you can benefit from the rule of 72. Divide 72 by your average interest rate (let’s say 7.2%), and you’ll find that your money will double every 10 years.
Imagine you have a million dollars in your investment account at age 55. If you can hold off retiring until you’re 65, that million can grow into a whopping two million dollars. That’s effectively doubling your annual withdrawal rate, making your retirement income more comfortable.
But you might say, “I don’t want to wait 10 years to retire.” That’s a fair point. Retirement can mean many things, including transitioning from a full-time, stressful job to part-time or contract work that allows you to maintain a healthier work-life balance. This way, you can avoid withdrawing money from your investments prematurely and let them grow further.
Eliminate Your Debt
Debt can be a financial monster lurking under the bed, and it’s essential to confront it head-on. Whether it’s a mortgage, car payment or other debts, paying it off before retirement can significantly reduce your income needs.
Imagine retiring without the burden of monthly debt payments. You might need less money to maintain your lifestyle or have a financial surplus that allows you to travel, or support causes you’re passionate about.
Ride the Investment Rollercoaster
Financial markets can be intimidating, especially when the news constantly warns of impending doom, but history tells us a different story. We’ve weathered wars, financial crises and market bubbles and emerged stronger each time.
The key is to keep investing through good and bad times. A strategy called dollar-cost averaging can help. By consistently investing over time, you’ll buy into the market at different price points. Over time, this averages out market volatility, potentially resulting in a lower average purchase price compared to your overall returns.
Our most successful clients have followed this strategy diligently. They invested regularly, regardless of market conditions, and it paid off handsomely.
Avoid the Market Timing Trap
Attempting to predict market movements is a risky game. Even seasoned experts can’t predict the future with certainty. Studies have shown that retail investors often miss out on significant returns by trying to time the market.
Instead, consider working with a financial advisor who can provide guidance during market fluctuations. They can remind you that we’ve faced tough times before and emerged stronger. Patience and a long-term perspective are your allies in the world of investing.
Don’t Inflate Your Lifestyle
It’s easy to succumb to lifestyle inflation as your career advances and your income grows. While some increase is natural, continuously expanding your lifestyle can be a retirement roadblock.
Avoiding excessive lifestyle inflation allows you to accumulate surplus funds as you progress in your career. This surplus can be invested wisely, used for philanthropy, or even to address long-overdue home improvements.
These are the five keys to a wealthy retirement. While they may seem simple, they hold the power to transform your retirement. It’s about finding the right balance between enjoying life today and securing your future. So, take these golden nuggets with you on your financial journey, and review them from time to time to make sure you’re on the right path to financial success.
Editor’s note: Connor Bauserman is a dedicated certified financial advisor at Preferred Financial Group.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Unlocking the Path to a Wealthy Retirement: 5 Crucial Keys