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In a 2021 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.
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 mortgagewill 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 methods, 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 average 401(k) balance of Americans age 65 or over who are saving money for retirement is $255,151. However, the average retiree needs more than that; a 2023 study from Northwestern Mutual found people expect to need $1.27 million to retire comfortably.
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.
This article was originally published in August 2021.
Personal Finance Reporter
Liz was a personal finance reporter at Insider. Before joining Insider, she wrote about financial and automotive topics as a freelancer for brands like LendingTree and Credit Karma. She earned her bachelor's degree in writing from The Savannah College of Art and Design. She lives and works in Cincinnati, Ohio. Find her on Twitter at @lizknueven.
