5 Smart Moves Wealthy Baby Boomers Make With Their Money

Famous star Bette Davis once remarked, "Growing older isn’t for the faint of heart" — and neither is amassing sufficient funds for an enriching retirement.

Creating a retirement fund requires dedication, self-discipline, and a carefully thought-out strategy. However, it is achievable.

It turns out that Baby Boomers, the generation with the youngest members being in their early 60s, possess valuable insights. Upon closer inspection, it becomes evident that those who have had successful retirements follow certain patterns of behavior—and they also have wisdom to share.

Should retirement planning be among your primary objectives, consider implementing these five smart strategies that have helped numerous baby boomers amass wealth by the time they retired.

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1. Avoid lifestyle creep

A boost in your financial situation, like getting a salary increase or receiving an inheritance, should not lead you to justify excessive spending.

Baby Boomers understand that additional income should be directed toward savings and investments rather than increased spending. When your expenses rise along with your earnings, it’s known as lifestyle inflation. Should this occur, less money will accumulate for your retirement fund, which could significantly affect your comfort level during your later years.

The optimal choice is consistently living within your limits and heeding the guidance that financial author Elizabeth Aldrich got from her dad: Establish a retirement budget and adhere to it.

As Aldrich told Business Insider Her father succeeded in retiring at 55—five years after his intended retirement age of 50. The sole factor causing this delay was the Great Recession of 2008; nonetheless, compared to others his age, the worldwide financial crisis did not entirely disrupt his retirement goals.

Through determining precisely how much capital he required, he managed to persevere—despite numerous acquaintances experiencing job losses and monetary difficulties—and smoothly transition into retirement. For this purpose, Aldrich's father reversed-engineered the calculation to ascertain the annual savings necessary, factoring in anticipated returns from investments. This strategy proved effective; similarly, Aldrich’s stepmother followed suit and retired earlier still, at age 49.

Although retirement planning might appear overwhelming, you can begin this process with just a few straightforward steps:

Create a budget
Earn more than you spend
Utilize additional money to initiate saving and investment plans

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2. Auto-save, always

The principle "out of sight, out of mind" is key when planning for retirement. One effective method is to establish automatic savings. This can be done by arranging automatic transfers from the bank account receiving your paycheck to a dedicated savings account, which serves either as an emergency fund or contributes to your investment portfolio. With this automation, you won’t need to remember each step; once your salary hits your checking account, the transfer happens automatically.

This approach is also referred to as the "pay yourself first" method. It revolves around the concept that saving is a behavior that needs to be developed and strengthened gradually.

An additional advantage of developing the practice of auto-saving is the potential for rapid accumulation of your nest egg. With the appropriate tools, you can boost your savings through the force of compound interest. This essentially implies that the earnings from your initial amount will generate further income which in turn generates even more income over time. To get the most out of compound interest, seek out savings options that offer higher returns on your contributions. Consider high-yield savings accounts and automated saving applications; however, always ensure that associated fees remain minimal.

If you’re seeking a savings account that offers a high interest rate, take a look at these alternatives:

EQ Bank
Simplii Financial
Koho

3. Invest consistently, perhaps even boldly.

After establishing the practice of saving, it’s crucial to cultivate the habit of investing. You might choose to invest in areas such as real estate, equities, mutual funds, or bonds. No matter what type of asset you select, the essential step is setting aside part of your income for an investment portfolio—a collection of assets expected to appreciate in worth over the years.

Specialists such as Dave Ramsey suggest that the optimal amount to invest is between 10% and 15% of your income. annual income Into an investment portfolio. Make certain to diversify.

Individuals from the baby boomer generation who possess substantial savings usually diversify their portfolios through an array of financial instruments and assets, encompassing equities, commodities like gold and valuable metals, along with exchange-traded funds (ETFs). As these individuals approach retirement, they tend to shift a growing portion of their investment portfolio towards lower-risk fixed-income options, such as bonds and guaranteed investment certificates (GICs). Over the past year, numerous boomers have additionally taken advantage of alternative sources for stable income, particularly within the realm of real estate.

If you're looking to initiate your investment portfolio, you must first set up a brokerage account. In the past, numerous baby boomers might have begun this process through a financial advisor whom they encountered face-to-face at their neighborhood banking institution. Nowadays, however, most investors—including those from older generations—favor the convenience and rapidity offered by online brokerage accounts. One major advantage is that these platforms can be notably more cost-effective compared to employing a human investment broker—a professional authorized to conduct trades on your behalf. Fortunately, several reliable online discount brokers operate within Canada. Some solid choices encompass:

CIBC Investor’s Edge Receive 100 complimentary trades upon opening a CIBC Investor’s Edge account with promo code EDGE2425. Additionally, qualify for $200 or more in cashback offers. This promotion concludes on March 31, 2025.
Wealthsimple Trading Receive $25 plus commission-free trades upon opening and transferring at least $150 into your trading account.
Questrade Receive a $50 trade commission rebate
Moka The auto-invest option allows you to choose among five professionally curated portfolios, and your account will automatically allocate the deposited funds according to your investment objectives and risk tolerance.

4. Avoid living on credit

Canadians shoulder significant debt burdens. As per the Q3 2020 Equifax Canada report, the typical Canadian owes more than $20,000 when all types of debts, such as mortgages, are taken into account.

Although debt seems like an essential instrument—we rely on it for financing our education, purchasing vehicles, and buying homes—it poses risks that might hinder both present and upcoming financial objectives. Individuals burdened with monthly debt obligations—whether from personal loans or credit cards—might find it more prudent to opt for cash payments or utilize a debit card instead. This approach compels them to limit their spending strictly within their available funds.

An additional approach to steer clear of the lure of accumulating debt is to establish a budget. This allows you to track your expenses and determine how much you should save to reduce your outstanding debts. Neglecting to do this might result in finding that a significant portion of your income goes towards merely covering the interest charges on your debts. As one BDO Debt Solutions report explains: "To reduce the weight of your interest payments, it’s best to consistently pay above the minimum amount required, which will help you save over time."

5. Consider what Warren Buffett would do?

Millionaire Warren Buffett has resided in the same home since 1958. That’s truly sticking to a budget.

"I possess all that I desire in life. It's quite straightforward," he stated to the crowd. ⁵ Years ago, alongside his former Berkshire Hathaway partner, Charlie Munger.

The two gentlemen laughed about their mutual thriftiness, playfully poking fun at how they had been residing in similar settings for years. They also attributed much of their business's prosperity to these economical practices.

I don't believe that the quality of life is directly tied to the expense of living past a particular threshold," Buffett stated to the audience. "Having six or eight homes or an abundance of various possessions wouldn’t make my life better; in reality, it might make me less content. There simply isn't a correlation.

— with contributions from Romana King

Sources

1. Business Insider: Retirement advice from my dad who retired early (Nov 13, 2020)

2. Ramsey Solutions: Why should I allocate 15 percent of my earnings towards retirement savings as of December 13, 2023?

3. BDO: 6 Reasons Why Budgeting Is Crucial (February 28, 2023)

4. MoneyMindset: A 2023 YouTube clip featuring Warren Buffett

This article 5 savvy moves affluent Baby Boomers make with their finances — how many of these do you follow? originally appeared on Money.ca

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