The best advice you can get about preparing for retirement might be from those who’ve already done it: retirees.
In a new study from the independent Employee Benefit Research Institute (EBRI), called Retiree Reflections(PDF), retirees share insights about their past financial decisions and current financial worries like inflation. For instance, more than two-thirds (70%) of surveyed retirees regret not starting to save for retirement earlier.
You might be able to use these insights to improve your retirement plan and head off some financial stress in your senior years.
Read on for three retirement plan action items inspired by real-world experience.
1. Save and invest more
There’s a simple investing rule that demonstrates how important time is to your results. Called the rule of 72, it’s a formula that estimates when your invested funds will double. Simply divide 72 by your projected growth rate. The answer is your doubling time.
A reasonable growth rate is 7% annually after inflation — this aligns with the stock market’s long-term average. At that rate, your money doubles about every 10 years. So $50,000 invested today is $100,000 in 10 years, $200,000 in 20 years, and $400,000 in 40 years.
Here are the takeaways: The money you invest today could quadruple in 40 years. Alternatively, if you put off investing for 10 years, it cuts your 40-year growth potential in half.
2. Set financial goals
Only 42% of surveyed retirees said they had identified financial goals in retirement and had documented a financial plan. But retirees should be comfortable pursuing and achieving financial goals. Confidence in that area enables them to adjust quickly to rising inflation, emergency expenses, and other unplanned circumstances.
Why not build that confidence now while you’re still working? Knowing you can reach financial milestones serves you well for the rest of your life. It’s also a key part of creating the retirement lifestyle you want.
You might start with a big, long-term goal, like saving 20 times your annual salary before retirement. Simultaneously, you might pursue one or two smaller contribution goals with shorter timelines. Examples are:
Buying a home
Setting and following a budget
Stockpiling enough cash to cover your living expenses for six months
Developing your skill as an investor
Paying off high-rate debt
Learn to achieve these goals in your working life, and you’ll have an easier time managing your money in retirement.
3. Plan for inflation
More than half (54%) of surveyed retirees cited inflation as a top financial concern.
You can address future inflation now by building your portfolio of appreciating assets and rising income streams.
Appreciating assets. Popular appreciating assets include stocks and income-generating real estate. Stocks can dip during inflationary periods, but they outpace inflation over the long term.
With respect to real estate, both rents and property values tend to rise with inflation. Even better, you can finance investment property with a fixed-rate mortgage, which stays the same no matter what’s happening with inflation or your rental income.
Rising income streams. Premium dividend stocks can deliver the rising income you’ll need in retirement. Dividend Aristocrats are popular choices. These are S&P 500 companies that have increased their dividends annually for at least 25 years straight.
While no dividend is guaranteed forever, Dividend Aristocrats are about as reliable as they get. These companies have a proven, lasting commitment to paying dividends.
Survey demographics
EBRI’s Retiree Reflections survey questioned 1,109 American retirees aged 55 to 80 in the spring of 2022. All respondents had at least $50,000 in financial assets.
Create the retirement you want
Use the perspective of today’s retirees to sidestep common financial regrets and stressors in your senior years. Saving and investing aggressively, setting financial goals, and planning for inflation are smart moves that will support your efforts to create the retirement you want.
