Many of us believe a high income is key to building a large retirement nest egg, but the truth is more complicated than that. There are some workers who manage to save millions despite never earning a high salary. And there are others who earn millions but fail to plan and wind up with little in retirement.
Obviously, having extra cash available is important when saving for your future. But your mindset matters a lot, too. A recent Goldman Sachs survey identified four traits the best retirement savers have. Understanding these and learning how to leverage these skills yourself could be key to growing your own wealth.
The first trait cited was optimism for the future. Perhaps unsurprisingly, younger adults, those who are married, and those with higher incomes and education levels are more likely to be optimistic about their future. They also report less stress and greater ease when managing their retirement savings.
These individuals are more likely to take an offensive approach when facing adversity, taking steps like changing their investment strategy to protect their savings against inflation or adjusting their asset allocation over time. They are also more likely to seek out assistance from financial advisors than are those who aren’t optimistic.
But it’s important not to stray into overoptimism. Retirement is expensive, and you don’t want to underestimate how much you’ll need or overestimate what you can save. Regularly reviewing your retirement strategy can help keep you grounded and on track.
2. Future orientation
Those who take their future into account when making decisions also report high retirement savings. They’re also more likely to have personalized retirement plans than those who focus more on the present.
Future-oriented individuals are also more likely to prioritize emergency savings. Though it might not seem relevant, having an emergency fund is key to keeping your retirement plan on track.
Without one, you could be forced to take on debt when unexpected costs arise. This could impede your ability to save for your future.
3. A risk-reward focus
The survey found that those who pursued their goals with a focus on achievement, rather than a focus on security and protection, also fared better when it came to retirement savings. Like optimists, these individuals are also more likely to take proactive steps, like creating a personalized financial plan or consulting with a financial advisor.
4. Financial literacy
High financial literacy indicates a strong understanding of important concepts related to money management and retirement savings. Individuals who scored well in this area have higher savings and are more comfortable managing their money, perhaps because they have greater confidence that they are making wise choices.
While financial literacy is certainly helpful in retirement planning, it’s not essential for getting started. Financial advisors are able to help those who don’t feel confident planning on their own, and there are plenty of online resources (including The Motley Fool) that can help you learn more about how to invest and prepare for your future. As you continue to work toward your goal, you’ll learn more and be able to make better decisions based on where you’re at.
How to improve your retirement readiness
Goldman Sachs found that the more of the above traits people have, the better they are at retirement saving. But this isn’t set in stone. You can improve your financial literacy, as discussed above, and that alone can go a long way toward improving your retirement readiness.
Other traits, like optimism and future orientation, might be more difficult to change on a dime. But you don’t have to. The reason these individuals are better at saving for retirement is because of the actions they take, and you can learn from those, regardless of your actual future outlook.
Things like reviewing your retirement strategy at least annually and updating your investments as the market and your risk tolerance change help a lot. So can managing your spending and building an emergency fund you can rely upon to cover unexpected expenses. And when in doubt, get advice from a financial advisor who understands your specific situation.
Saving for retirement is challenging, and it’s a learning experience for everyone. Rather than writing yourself off as bad at saving, take a look at what you can do and track your improvement over time. You’ll grow in confidence as you get more practice and see the results of your efforts.