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3 Characteristics of financially solvable retirees

3 Characteristics of financially solvable retirees

P lush S tudio's / Shutterstock.com Editor's note: This story originally appeared on NewRetirement.Although not everyone is prepared for retirement,

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Editor’s note: This story originally appeared on NewRetirement.

Although not everyone is prepared for retirement, some older Americans are doing pretty well. Adapting these three characteristics to your own retirement can give you a more secure future.

According to investment firm T. Rowe Price’s survey of more than 2,500 people who have 401 (k) plans and / or individual retirement accounts (IRAs), the most important factors contributing to their stable retirement are:

  • Flexible spending habits
  • Significant savings
  • Income from picking up another job

Explore the traits shared by successful retirees.

1. Be flexible with your expenses

Senior businessman driving home with cash from work
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Most retirees show flexible spending habits, according to the T. Rowe Price study. Three out of 5 would rather adjust their spending up and down according to the market to maintain the value of their savings and investments rather than maintain the same level of spending year after year, running the risk of possibly shrinking their portfolio.

Willingness to be flexible with spending is “absolutely key” both before and during retirement, says Jon R. King, a certified financial planner at Austin, Texas-based Pegasus Financial Solutions, LLC.

“Spending before retirement is important because the less you spend, the more you save,” he says. “Cut spending after retirement [your money] last longer. ”

To test how much of an impact spending has on retirement income, King often performs a “what-if” scenario. In one case, he increased a couple’s expenses by $ 10,000 a year and made some predictions.

The two clients were in their early 50s, so the additional spending then began. With this increase, King found that the couple’s money would run out at age 93, as opposed to a $ 2 million surplus at age 97.

“They saved a high percentage of salary, but the additional expense of $ 10,000 significantly reduced the savings rate,” he says.

While each case is different, and it may not be a typical outcome, it does show the impact that spending habits can have on retirement savings.

Start your own what-if in the New Retirement Planner.

2. Save money – save early and often and catch up when you’re behind

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Spending goes hand in hand with saving, as “your spending really determines how much you can save,” King says.

“The three most powerful factors in financial planning are being aware of how much you spend, being aware that you also need to save, and the sooner you save, the better,” says certified financial planner Jeffrey Bogue, of Wells, Maine-based Bogue Asset Management. “Everything seems to be in line after that.”

T. Rowe Price reports that many retirees with 401 (k) s and IRAs have significant savings, with 48% having $ 500,000 in household assets (taxable assets plus home equity, minus debt).

While the amount people need to save for retirement is determined on a case-by-case basis, there are certain things everyone can do to take steps to create a stable retirement plan.

By separating your savings accounts, retirees can keep on track to ensure their spending patterns do not interfere with their savings, Bogue says.

Different savings accounts or “buckets” must represent short-term, intermediate and long-term commitments or goals. For example:

  • One account holds money for previous liabilities, including mortgages and other accounts.
  • A second has savings for intermediate and long-term goals, such as buying a car or taking a vacation. This bucket includes retirement accounts, such as 401 (k) plans.
  • The third is the “in between” – a cash flow bucket of seven to 14 days for everyday spending on things like gas, groceries and leisure activities.

“It gets everyone’s ducks in a row,” Bogue says. “It’s much better than just saying, ‘OK, let’s make a budget,’ and saying at the end of the month, ‘Did I win or lose?’

3. Work – Retirement work

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Sometimes adjusting spending habits or working out savings plans is not enough to get people in a comfortable place with retirement. In these cases, many look to part-time or even full-time work to provide some additional income.

“Retirement does not necessarily mean a decision to work or not to work; it’s a decision to work on your own terms, ”says Bogue.

About one-fifth (21%) of respondents to the T. Rowe Price survey were retired, but went back to work either part-time or full-time, while another 14% were looking for work.

“I think you’re going to see more and more of that because there are going to be a lot of people who realize they need more of a pillow when they retire,” King says. “When you plug in part-time work, it sometimes makes a plan work that otherwise would not.”

Other factors that contribute to a secure retirement plan

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In addition to spending less, saving more, and being open to working or working longer during retirement, there are other qualities that can help retirees create a secure retirement.

In his survey, T. Rowe Price found:

  • Nearly half (48%) of retirees indicated they have a withdrawal plan, and the average retirement withdrawal among them was 4% of their investable assets in the past year.
  • Retirees report that they live on average just 66% of their pre-retirement income, which is less than the 70% -80% that some financial planners and investment firms suggest people take into account when planning for retirement.

Although everyone’s needs and desires differ, all of these characteristics can help point pre-retirement and retirees in the right direction.

“They are all related. Sure, save more and spend less – that’s kind of the key to the whole thing, ”says King. “Have a goal and know how much money you will have to accumulate before you retire to have the lifestyle you want.”

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