Business Insider – August 19, 2021

In a new report, the Employee Benefit Research Institute’s Retirement Security Research Center divided a surveyed group of 2,000 retirees into five groups: average, comfortable, struggling, ‘just getting by,’ and affluent. The survey only looked at households of retired people aged 62 to 75, and with less than $1 million in assets.

  • In a study of retirees with less than $1 million in assets, EBRI found wealthy retirees tend to have several things in common.
  • They tend to have paid off their homes and don’t have credit card debt or auto loans.
  • They also have more than $320,000 saved for retirement — though what each household needs will vary.

When the study looked at commonalities among the affluent group, it pinpointed significant financial achievements that might be harder for some people than others depending on all kinds of factors: debt and income levels during your working life, any generational wealth, and living costs across the US. However, the characteristics that members of this group generally displayed fall in line with common financial goals for many Americans who dream of retiring one day.

Here’s what the group labeled affluent had achieved, and how to put these practices in place for your own retirement plan.

1. They paid off their mortgages

The study found that those in the affluent category were mostly homeowners who had paid off their mortgages.

Paying off your mortgage will significantly decrease your expenses, and help your retirement savings stretch further. When you’re only responsible for property taxes and maintenance, keeping up with your home’s costs will be much easier in retirement.

If you think paying off your mortgage is the right move for you, consider how much time you have left on your mortgage, and how much more your money could earn if it was invested before you retire. Also, consider the non-financial aspects — if it would make you feel more secure in retirement and you can afford to do it, it may be a good move.

2. They don’t have consumer debt

Wealthy retirees in this study were the least likely to have credit card debt and auto loan debt, two common types of consumer debt. According to EBRI’s research, only one in five wealthy retirees had auto loan and credit card debt. Compared to the average retiree, that’s significantly less — in the average retiree category, about half had credit card debt, and about half had a car loan.

Not having consumer debt can make a big difference in your retirement plans — not only does it decrease the amount you’ll need to spend each month, but it can also make your savings stretch further.

If paying off credit card and auto loan debt sounds like the right move for you, start by considering how long you have before retirement. If you still have several years, a method like the debt snowball or debt avalanche method, which prioritize debts by size or interest rate, can help you to pay it off quickly.

3. They have more than $320,000 saved

Retirees in EBRI’s affluent category had more than $320,000 saved for retirement, but the amount you’ll need may be very different.

The typical 60-something has about $642,000 saved, according to Personal Capital. However, the average retiree would need about $1.6 million to live on $65,000 per year in retirement, according to Insider’s Tanza Loudenback.

There’s no set amount you’ll need to be comfortable in retirement, because it depends on your lifestyle and how you plan to collect income. But, there are ways to calculate your individual figure.

One of the most popular methods is the 4% rule, which assumes you’ll withdraw 4% of your savings each year in retirement. To find out how much you need based on this rule, multiply the annual income you want by 25 (the typical number of years you could be retired) to find the total. The resulting number is a good estimate of how much you’ll need to retire comfortably.

By Liz Knueven

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