In my previous post, I talked about the first four habits of highly effective retirees: maxing out savings plans, boosting contributions, estimating retirement income and periodically reviewing your savings and investment strategy. Here are the final three traits and strategies that all successful retiree share:
Change the investment mix. The reality is, your personal and financial circumstances change over time, and your investment mix should evolve accordingly. At age 25, it makes sense to be in the market, but at 65, it doesn’t. Highly competent retirees understand that, if you have a large sum of money invested and you are close to the finish line, you should adjust your exposure accordingly. I use a motor racing analogy here: early in the race, it’s ok to take some risks, but when the finish line is in sight, be more cautious. If you blow a tire, you can probably still finish out in front, but you just can’t afford catastrophic engine failure.
Enroll early. Enrolling in retirement plans early is one of the easiest and most important steps you can take, and highly competent retirees have virtually all done exactly that. Even a modest five-year difference in when you start to save and invest can make a dramatic difference in your total returns: if you start early, you can actually put in less money, and retire earlier with bigger returns! It turns out that, in this case at least, time really is money.
Save, save and save some more. Highly competent retirees put away as much as they possibly can. Saving and investing as much as you can afford and as much as your plan or plans allow (including the catch-up provisions in your 401(k) over age 50) is the most basic—and still the best—way to secure your long-term financial future.