Ways to never run out of money

For many consumers the economic recovery isn’t so much crawling as stalling, but now is a good time to begin planning a future that’s secure. It may also mean creating a lifestyle that doesn’t place money at its core, according to Consumer Reports.
When the Consumer Reports National Research Center recently surveyed 24,270 online subscribers age 55 and up about their finances and satisfaction with their lives, it found some common keys to peace of mind that had little to do with big salaries or high living. While 75 percent of retirees who had $1 million were highly satisfied in retirement, satisfaction didn’t change much more as net worth rose beyond that. And half of those with less than $250,000 in net worth were highly satisfied in retirement.
Notably, retirees with regrets about past actions, opportunities missed, or misfortune, were less likely to be highly satisfied than those with no regrets. Fifty-seven percent of retirees in CR’s survey said they have regrets about financial decisions they made. Twenty-one percent of retirees wished they had taken better care of their health, and nearly as many (19 percent) regret not developing lasting interests and friendships.
CR offers ways to ensure folks don’t run out of money on their way to personal satisfaction, while they work and after they retire. They include:
— Live modestly. Even when times improve, living within your means has its benefits. Retirees in CR’s survey who were most satisfied with their situation credited living modestly as among the best steps they’d made earlier in life.
— Keep to a budget. At its simplest, a budget involves splitting your expenses into have-tos and want-tos, and paying the have-tos first. Setting some short- and long-term spending goals may make it easier to stick to your plan.
— Start saving early. The survey found that retirees who began saving and planning early — say, in their 30s — had a greater net worth: $1.1 million on average, compared with $868,000 for those who waited until their 40s, and $651,000 for those who started later. Thirty-nine percent of retirees said they regretted waiting to save.
— Diversify your holdings. Having a variety of investments — stocks, bonds, and real estate, among others — correlated highly with net worth in the survey, regardless of income level. Retirees with seven or more types of investments had an average net worth of $1.4 million. Those with three or fewer had an average net worth of $678,000.
— Prioritize retirement over college. You can borrow money for a college education, but you can’t borrow toward your retirement. So while it’s fine to start a 529 savings plan for your kids, make funding it a secondary goal.
— Stay in the game. A Fidelity Investments study of the balances of its 401(k) participants age 55 and up found a real benefit to perseverance. Those who continuously contributed to their plans doubled their average account balance in the 10 years ending the third quarter of 2010, which included the financial fiasco of 2008 and 2009.
— Pay off debt. Accelerate payments on your mortgage with an eye toward paying it off my retirement. That might seem counterintuitive, given the past year’s stellar market performance, when putting extra cash in the S&P 500 would have provided a better return. But given the market’s ups and downs, that strategy can backfire; just as you’re ready for retirement, you could be stuck with losing investments and a mortgage still to be paid.
— Work longer. Twenty percent of CR’s survey respondents worked part-time in retirement; 37 percent of that group said they needed the income. But the psychic benefits of continued employment also were important to many. More than half said working made them feel useful; 38 percent said they enjoyed work too much to give it up.

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