Because you're rich, you think it will always be that way, even after you take off your work boots (or suit) and ride off into the sunset. But retirement isn't the only thing that appeals to many wealthy people.
According to Boston University's Retirement Research Center, more than 25% of all U.S. households believe they are on track to maintain their standard of living in retirement, but not on track.
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The study shows that wealthy people are more likely to underestimate the amount of money they need to maintain their standard of living in retirement.
In many ways, this is a question of perception versus reality. What rich people perceive to be true about their finances, and what actually is, can have a huge impact on their future.
Here are some of the many reasons wealthy people often underestimate how much they need to save for a comfortable retirement.
As home values rose, many households felt more financially secure without having to fully account for their remaining mortgage debt. This problem is particularly pronounced among higher-income households, which typically own more valuable real estate, resulting in underestimating housing debt relative to equity.
The concept of the “illusion of wealth” can mislead people regarding their defined contribution (DC) plan balances.
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For example, a $100,000 balance may seem like enough money, but it's only about $617 a month in retirement income, which may not cover your living expenses.
This misconception, often reinforced by strong market returns, tends to affect low- and moderate-income households, making them overly optimistic about their financial preparation for retirement.
Dual income households often overlook the need to replace both partners' income in retirement in order to maintain their lifestyle. Households where only one spouse contributes to a retirement plan are especially at risk of underestimating their future financial needs.
This risk increases with higher incomes, as Social Security benefits replace a smaller proportion of the wealthy's pre-retirement income, contributing to a false sense of financial security.
No matter your age, you should always keep retirement in mind. Time flies and if you don't plan your future carefully, you can quickly find yourself not having enough money to maintain your standard of living after your working years are over. .
Wealthy or not, there is no need to underestimate what it takes to live well in retirement.
Consulting with a financial advisor can provide additional guidance and support for those planning for retirement. Financial advisors recommend personalized investment strategies, create effective budgets, and work toward both short-term and long-term financial goals.
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*This information is not financial advice. To make informed decisions, we recommend individual guidance from a financial advisor.
Chris Bibey has been writing about personal finance and investing for a variety of publications and financial companies for the past 15 years. He is not a licensed financial advisor and the content herein is for informational purposes only and does not constitute, and is not intended to constitute, investment advice or investment services. While Bibey believes that the information contained herein is reliable and obtained from reliable sources, Bibey makes no representations, warranties, or guarantees, express or implied, as to the accuracy or completeness of the information. Or no promises.
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