Adequate savings are crucial for a happy and sustainable retirement, as shown by research indicating that the happiest retirees typically have $1.25 million in liquid retirement savings annually. While money isn’t the key to happiness, it does provide opportunities and choices for those who have saved diligently. However, relying solely on savings without investing can be a costly mistake that impacts future wealth.
For many families, saving a portion of their income each year is challenging, with nearly 70% of Americans aged 65-69 having less than $100,000 saved for retirement. The fear of losing savings often leads individuals to play it safe, with news headlines amplifying concerns about the state of the world. However, saving alone may not lead to significant wealth accumulation, as cash assets have historically not kept pace with inflation. It is crucial to stay ahead of inflation to protect purchasing power in retirement.
By comparing the stories of Jack the saver and Jill the investor, the importance of investing in addition to saving becomes evident. Jack put his money in a savings account, while Jill invested in a diversified stock-based index fund, leading to vastly different outcomes over a 32-year period. Jack’s 1% annual return resulted in $451,000, while Jill’s 10% return yielded over $2.4 million. The difference highlights the importance of investing for a happy retirement.
Happy retirees are considered “tomorrow investors” who understand the limitations of saving alone. While it is prudent to have an emergency fund, most of their retirement funds are invested in assets that have the potential to appreciate and outpace inflation over time. By harnessing the long-term investment potential of various asset classes, retirees can create a promising financial future. While investing involves risks, historical data suggests that patience and time can be beneficial for investors.
It’s crucial to consider the risks and potential losses associated with investing, as there are no guarantees when it comes to the stock market. Past performance is not indicative of future results, and it’s essential to consult with a financial advisor before making any investment decisions. By understanding the benefits of investing in addition to saving, individuals can set themselves up for a brighter financial future in retirement. Ultimately, the combination of saving and investing can lead to significant wealth accumulation and a happier retirement.
