It may surprise you to hear that according to the latest U.S. Department of Labor survey (2019), the wealthiest Americans spend less on food (4.8%), housing (2.3%), clothes (-3%) and transportation (4.2%) than the lowest of income earners (food, 7.1%; housing 9.3%; clothes, 9.2%; transportation, 23.2%). At the same time, this group is investing more of their income on their future compared to individuals in lower income brackets. The low-income groups are spending more than they earn. While it may sound strange that the wealthier consumers are more conservative with their spending habits, it also might make people think about how to formulate their spending habits to match those of the higher income earners. In fact, this might be a great first step to your retirement plan.
Consumer spending habits are just one important piece of the puzzle when trying to save for a wealthy retirement. There are a number of other habits of the wealthy that have put them in a financially sound position, many of which you can model to create your own wealthy retirement. Don't forget that being wealthy in retirement is about more than just a healthy bank account. It is also about being happy and healthy, staying busy, and having plenty of core pursuits. Here, take a look at the five best ways to model wealthy retiree behavior and incorporate them into your life.
Changing the Traditional Retirement Plan to Benefit You
Wealthy retirees are aware that they are going to need to count on more than just their traditional retirement plans to live comfortably and relatively free of financial worry. It is no longer feasible to think that living off your Social Security benefits, and your 401(k) and IRA balances are going to provide enough to retire wealthy. With a traditional model, retirement incomes are comprised of a combination of Social Security and benefit pensions. But a new retirement model shows that income can be generated through real estate investments, business accounts, taxable investment accounts, bank accounts and guaranteed insurance products.
Live Below Your Means
It’s already been proven that the wealthiest earners in America spend far less of their income on a home than the lower income brackets do. Just because you can afford the sprawling mansion doesn’t mean it’s the best decision for you and your future. Living in a modest home that you can pay off before retirement will assure you financial freedom you can’t beat.
Again, wealthy Americans are living below their means and keeping their spending in check.
Look at 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 your hard work has earned. Power savers can put away 20% of their income into savings and, if they pay about 30% in taxes, leaves half of an income to live on. A 2020 study from the Consumer Financial Protection Bureau found that 55% of retirees who had paid off their debt and were claiming a reduced Social Security benefit were able to maintain their same spending level for five years after retiring. Continually remind yourself that the purpose of saving and decreasing your debt load is to put you in a position to do what you’d like in retirement, whether it’s travel, pursuing your passions, or spending time with family.
Decide on Investments
Wealthy retirees tend to have diverse forms of investments and incomes as opposed to just traditional retirement plans. You might have trouble deciding on the types of investments you want. To help you out, first decide on the type of life you hope to live as you enter retirement. Do you want to manage rental properties? Do you want to continue working part-time or take on freelance work? Answers to these questions will help you determine some of the other incomes you can bring in as a retiree and the types of investments that will work for your lifestyle.
Busier Retirees Are Happier Retirees
A 2013 study from Merrill Lynch and Age Wave found than 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 with a "higher quality of life" were more intentional about maintaining good health, and thought of retirement as "a journey" and "an exciting new chapter in life."
Find hobbies, enjoy your grandchildren and determine your purpose.
Being wealthy in retirement is not out of reach and by modeling some of the behaviors of higher income earners, you too can be well on your way.