Retirement Expert Reveals the 'Highest Single Correlation' to Success

As we approach retirement, many of us wonder what the key to a successful and secure financial future is. While there are numerous factors that contribute to retirement success, a recent report from the National Institute on Retirement Security found that 55% of Americans fear they can't achieve financial security in retirement. So, what is the 'highest single correlation' to retirement success? According to a retirement expert, it's the percentage of income saved and invested.

Christine Benz, Morningstar's director of personal finance, put together a series of investment portfolio examples that both retirees and savers can refer to as they build their own portfolios. The goal of these portfolios isn't to generate the best returns of any retirement portfolio on record, but rather to help retirees and pre-retirees visualize what a long-term, strategic total-return investment portfolio could look like. By focusing on saving and investing a significant portion of your income, you can create a solid foundation for a secure retirement.

To illustrate this point, let's consider the example of two individuals, both 55 years old and earning an annual salary of $75,000. The first individual saves and invests 15% of their income each year, while the second individual saves and invests 30% of their income each year. Over the course of 20 years, the second individual would have accumulated nearly twice as much in their retirement portfolio as the first individual, assuming an average annual return of 7%.

This example demonstrates the power of saving and investing a significant portion of your income. By increasing the percentage of income saved and invested, you can significantly improve your chances of achieving a secure and comfortable retirement. Additionally, it's important to note that this correlation holds true regardless of your risk tolerance or investment preferences. Whether you prefer a more conservative portfolio or a more aggressive one, the key to retirement success is saving and investing a significant portion of your income.



In addition to saving and investing a significant portion of your income, it's also important to diversify your portfolio and rebalance it periodically to maintain your desired asset allocation. By diversifying your portfolio across multiple asset classes, you can reduce risk and enhance returns. For example, Christine Benz's bucket portfolios for retirees include a built-in stabilizer for turbulent times, with cash reserves that retirees can draw upon when yields are insufficient to meet living expenses. This goal of having buffers like these is in no small part peace of mind, as a retiree shouldn't be overly rattled during periods of short-term market turbulence because near-term spending will be relatively undisturbed, and the rest of the investment portfolio can recover when the market eventually does.

Rebalancing your portfolio periodically is also crucial to maintaining your desired asset allocation. As markets fluctuate, the value of different asset classes will change, causing your portfolio to drift from its intended allocation. By rebalancing your portfolio, you can ensure that it remains aligned with your investment goals and risk tolerance. For instance, U.S. News & World Report suggests reviewing and rebalancing retiree portfolios at least annually if the asset allocation has strayed 5% or more from the base percentages.

In conclusion, the 'highest single correlation' to retirement success is the percentage of income saved and invested. By saving and investing a significant portion of your income, you can create a solid foundation for a secure and comfortable retirement. Additionally, it's important to diversify your portfolio and rebalance it periodically to maintain your desired asset allocation. By following these principles, you can increase your chances of achieving a successful and secure financial future in retirement.