A rich retirement life is often the result of patient investing and diversification across asset classes in your working years that offer adequate income and financial security when you hang up your boots. How much you need to retire is a burning question that younger generations pay more heed to than millennials and boomers. While several estimates have popped up recently, a Northwestern Mutual 2024 Planning and Progress Study found that Americans, on average, feel they need $1.46 million to retire comfortably.
Meanwhile, Federal Reserve Board survey data suggests that to be among the top 10% of wealthy retirees, you require a net worth of $1.9 million. The figure goes above $2.63 million for those aged 65 and higher. Research showed that these individuals had several attributes in common, like detailed financial planning, diverse investment portfolios, and multiple income streams.
Replacing Work Salary With Investment Income
The Federal Reserve's findings contrast the average retiree's net worth of around $280,000 and an annual income of $75,000. Wealthy retirees between ages 65 and 69 have an average yearly income of $200,000, and most achieve it by thinking beyond income streams like Social Security. While government income like Social Security can earn you a maximum of $58,476 annually, the top 10% also bring in money from pensions, stock dividends, rental properties, and businesses they own or have invested in. These high-net individuals aim to reach a crossover point when their passive income streams can cover all expenses and still save some money.
A Balanced Long-term Mindset
Americans retiring wealthy avoid playing it too safe or too aggressive. With clarity on what they want long-term, these individuals typically retain exposure to aggressive and conservative investment instruments. For instance, their portfolio could allocate 60% to stocks, 30% to bonds, and 10% to cash investments. The takeaway is that the top 10% of retirees still seek to grow their retirement funds post-retirement and not settle for a completely conservative approach or capped income levels. This balanced approach helps many people increase their net worth while benefitting from regular income. Naturally, the wealthy hedge risks with gradual shifts to conservative components in their portfolio over time, but it is unlikely they will park all money in ultra-safe, low-yielding investments or accounts.
The Role of Location In Retirement Finances
Where you reside in retirement is often an underrated factor many overlook. Some US cities can prolong retirement funds and incomes further than others. Retirees in high-income regions can rake in $90,000 yearly, but one can live with much less income in relatively lower-cost cities. The flexibility to choose where to retire is among the top factors that help wealthy retirees maintain their high-quality lifestyle. Many move to southern states like Florida and Arizona due to warmer weather and favourable taxes. Retirees also consider affordability, amenities, health care services, and overall quality of life in the city they are planning to retire.
Delaying Claims on Social Security
While Social Security can be a small part of a high-net-worth retiree's income, rich people take advantage of every opportunity to maximise returns. Delaying Social Security till 70 can fetch you a monthly income above $4,000 compared to the maximum of $2,710 for those claiming at 62. The Social Security Cost-of-Living Adjustments (COLA) for 2025, expected to help recipients overcome inflation, is projected to increase by 2.5%, the lowest in three years. The Social Security Administration is set to officially announce the COLA 2025 in a few days as it awaits September inflation data. The reduced hike can be attributed to the cooling inflation trend and the recent 50 basis point rate by the US Federal Reserve.
