Investing for Survival

Investing for Survival

There are some basic and undeniable tenets of retirement preparedness, including starting to save early, saving consistently, and leaving your nest egg undisturbed until retirement age. But as research like 2013's Moss National Money and Happiness Study -- which found the happiest retirees don't have a mortgage or are very close to having it paid off by the time they retire -- shows that the financial choices you make in your 20s, 30s, 40s, and beyond have significant bearing on how, when, and how well you retire.
 
We asked financial experts to share the money moves their clients who are best prepared for retirement make, despite their incomes and ages, and why replicating these moves can help boost your chances of a successful financial future.
 
They prioritize cash flow. A well-prepared retirement strategy is about cash flow, including the amount of money that can be saved and spent, says certified financial planner Dan McElwee of Ventura Wealth Management. "Extravagant spending, living for today, and acquiring burdensome debt for unnecessary purchases all take a toll on a retirement plan," he says. "Having a car payment that's too expensive or a mortgage payment that's barely affordable cuts into the amount that can be saved for retirement." On the topic of real estate, remember that while your home provides shelter and plenty of intangible benefits to your desired quality of life, it's not inherently an investment -- or one that's guaranteed to deliver any significant return for the long term.
 

They know their living expenses. Financial experts don't always agree when it comes to the exact figure that people need to reach to ensure a comfortable retirement, and that's largely due to the fact that retirement includes a host of unknowns, including how long you'll live, whether you'll remain in good health, and if you'll be able to generate income post-retirement. Regardless of whether you aim to save at least 16% of your salary a year or to accrue at least 11 times your "ending salary" by the time you retire, Steven Elwell of Schroeder, Braxton & Vogt Financial Advisors says the most well-prepared retirees know a few key numbers: how much they spend monthly and annually now, and what they anticipate they'll spend in retirement. Without those figures, he says it's impossible to accurately plan for retirement. "If you were going to take a road trip and asked me how much money you need to budget for gas without telling me where you were going, there's no way I can answer your question," says Elwell. The same is true with retirement planning.
 
They're steadfast about saving. Ozeme J. Bonnette of Tri-Quest Investment Advisors says the most well-prepared retirees mitigate the risk of unforeseen events by building an emergency savings fund sizable enough to weather life's mishaps, so they aren't forced to withdraw money from retirement funds, take on debt, or stop contributing at least some amount of money to retirement. "There has to be a commitment to set aside money for retirement with each and every paycheck," says Bonnette. "Social Security isn't going to be enough to live comfortably." That level of commitment however, requires sacrifice, which may mean carrying an affordable mortgage that can be paid down faster. "Be willing to say no to things you may think you want now so that you can confidently retire later," Bonnette adds.
 
They know how to manage and analyze their debt. Taking on loans and managing debt to maximize your assets and returns is another key strategy to retirement preparedness, says Randy Kurtz of Core Asset Management. "For example, you don't need a car loan, you need a loan -- with the best rates and terms," says Kurtz. "Most people spend more time analyzing their new grill than they do their debt." Today's lending rates remain near historic lows. If you can borrow for less than you stand to earn on your money, for example, you can ultimately maximize the value of your cash on hand.
 
They prioritize their health. Not all health issues are in your control, but those that are, like stress management, getting enough sleep, staying active, and eating healthy foods can actually help you find some control over the amount of money you spend on medical bills and make you better prepared for retirement. According to the2014 Guardian Workplace Benefits Study, respondents who considered themselves to be in "very good health" reported feeling more confident with their ability to manage their finances and maintain financial security in the event of a spouse's premature death, disease, or disability than those who self-reported being in "fair" health. Likewise, those in very good or excellent health claimed to save 20% of their annual income for retirement and similar savings goals, compared to those in "fair or poor" health, who save only 14%.