Three Good Habits of Successful Retirees

Jan 16, 2014: Vanguard's chairman and CEO Jack Brennan has nearly three decades of valuable experience in investing at this great firm. He has observed that successful long term investors share some common traits. Here is our spin to his observations.
  1. Plan AheadPlan Ahead: Successful retirees planned well ahead of time to meet their retirement's financial needs and they walked the talk triumphantly. This planning process helped them to figure out the amount of money they would need to retire. Most of them also had a good idea about their location of retirement and a target portfolio size that would complement any other guaranteed income stream.

  2. Relatively Low Overhead ExpensesRelatively Low Overhead Expenses: Another good habit that helped people to retire successfully was their ability to keep retirement expenses in check. Most of them were either debt free or minimally indebted on their real estate properties when they retired. That meant no new fancy homes at the age of 65 which would've implied new mortgage and fresh debt! A low overhead gives us greater financial flexibility since there are lot of uncertainties once we're retired.

  3. Diversified yet Growing PortfoliosDiversified yet Growing Portfolios: Retirees who triumphed had very diversified portfolios which minimized its volatility. One of the greatest challenges for a retiree is to beat inflation. A 3% inflation can double the cost of living in approximately 25 years.

    Brennan mentions a straightforward way of dealing with inflation in retirement is to keep the portfolio growing. He says that retirees should hope to earn a real return which is above the inflation rate to keep their real purchasing power intact over time. And to make a retirement successful one should have the discipline to consume only that much of a portfolio's returns which is above inflation.

    For example, if the inflation is 3% and a portfolio's annual returns is 6%, then a retiree should spend only 6% - 3% = 3%. This is extremely important since a retiree's ability to beat inflation is much less than that of someone who is employed.

    Having a growing portfolio during our retirement is a big change from theoretical practices which advocates a predominantly bonds dominated portfolio. Brennan thinks that such a portfolio will no longer be sufficient to meet a retirees needs today. Our life span has increased and if we want a good return on our assets after we spend some of them we've got to take some risks. In short, during retirement taking too little risk is a big risk!
Trustworthy financial adviceTo have a carefree retirement in addition to the above traits, it is important to have a periodic check up of our portfolio. If we love personal finance and are knowledgeable we can do it ourselves else we've got to seek professional advice. Brennan advises that while looking for a financial adviser, knowledge and experience in retirement planning are not enough. Two most important qualities that we should keep in our minds while deciding on an adviser are trust and shared values. If we can totally trust the person and he/she shares our outlook and core values then we'd be fine.

We acquiesce with Brennan :). Please let us know your view points and experiences about good habits that would lead us to successful retirement.

1. Brennan, Jack: "Good habits of successful retirees."
Image Source(s): iStockPhoto

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