If I were asked what an investor should do to maximize retirement wealth, I’d tick off my standard list, my rules of thumb. Start saving early—and regularly. Keep debt under control. Maximize the use of tax-deferred retirement accounts, like 401(k)s. Maintain a balanced investment strategy. Keep investment costs low.
Today, because of the greater focus on the “spending” or retirement phase of life, I’d add these suggestions for those approaching or in retirement: Have a spending plan. Maintain a balanced (though more conservative) portfolio. Draw down from assets carefully. Consider the role of guaranteed income. And again, keep costs low.
Underlying these financial rules is an essential principle—deferral of gratification; namely, the importance of making an investment today for a benefit tomorrow. I must consume less today to have a positive outcome, more saving, in retirement. I must spend cautiously in the early years of retirement to have my savings stretch over many years.
It turns out that this same principle also comes into play on the health side of retirement. New research shows that the critical lever for improving health in retirement is doing something about your health before retirement, specifically in your 40s and 50s. Being fit in middle age (or getting fit during this time) seems to reduce the numbers of years of illness later in life. Of course, middle-age fitness can’t protect against disease with certainty or guarantee permanent good health—nothing can. But it does appear to enhance the chances for a longer period of health.
This finding is very reminiscent of comments I heard years ago as part of a Vanguard project on the issue of “health and wealth” in retirement. We interviewed a number of physicians about health and wellness, and the comment from one sticks with me to this day. He said (and I paraphrase), “Don’t come in as a 70-year-old with heart disease and ask me about wellness. Come in and ask me about it when you’re 40.”
He then ticked off his own rules of thumb for healthly living. Exercise regularly. Don’t smoke. Drink in moderation. Manage your weight. Get a good night’s sleep. And build strong social relationships.
In an uncanny way, the ideas parallel those of the financial world. Make an investment today so that you can enjoy health—and wealth—tomorrow.