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The pursuit of financial success: Insights for retirement income planning

by Alliance America
January 22, 2025

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A groundbreaking study by Empower provides revealing insights into how Americans perceive and pursue financial prosperity, challenging traditional assumptions about retirement income needs. From defining success metrics to identifying key behavioral patterns, these findings offer valuable guidance for both financial professionals and individuals planning their retirement journey.

What do Americans say is the "secret" to financial success?

Over half of Americans believe there's a secret formula to achieving financial success. This perception underscores the importance of strategic planning and informed decision-making in personal finance, especially when it comes to retirement preparation. The idea of a "secret" suggests that many people feel there are hidden strategies or knowledge that, if uncovered, could lead to financial prosperity and significance in terms of a lifetime achievement.

How much money do Americans think they need for financial success?

A black wallet with a key placed on top, surrounded by fanned-out cash

The study reveals a striking figure: Americans, on average, believe that an annual income of $270,000 is required to achieve financial success. This number, while aspirational for many, highlights the high expectations individuals have for their financial well-being. For retirement planners, this figure can serve as a benchmark to consider when helping clients set realistic income goals for their post-work years.

It's important to note that this figure may vary significantly based on factors such as location, lifestyle and individual financial goals. Financial professionals should work with clients to determine a personalized "success number" that aligns with their specific circumstances and aspirations.

What is the "Factor of Four" in financial success?

Empower's research introduces the concept of the "Factor of Four," which encompasses key elements contributing to financial success:

  • Disciplined money choices. Making smart, consistent financial decisions.
  • Meritocratic approach. Believing that effort and performance lead to success.
  • Planning. Combining dreams with practical financial strategies.
  • Serendipity. Acknowledging the role of fortunate circumstances.

For retirement income planning, this framework suggests a balanced approach that combines diligent saving and investing with flexibility to adapt to unexpected opportunities or challenges. Planners should help clients develop strategies that address each of these factors, creating a comprehensive retirement plan that maximizes the potential for financial success.

What are the common barriers to financial success?

Stacks of coins wrapped in barbed wire

While research often emphasizes optimism in financial planning, it's crucial to recognize and address the obstacles many individuals face when striving to achieve their financial goals. These barriers can significantly impact one's ability to save, invest, and plan for a secure retirement. Let's explore some of the most common barriers to financial success in more detail:

Lack of financial education

Financial literacy is a fundamental skill that many people lack, creating a significant barrier to financial success. This deficiency can manifest in several ways:

  • Limited understanding of financial concepts. Many individuals struggle with basic financial terminology and principles, making it challenging to make informed decisions about savings, investments and retirement planning.
  • Inability to create and stick to a budget. Without proper financial education, people may find it difficult to track expenses, allocate resources effectively and prioritize savings.
  • Poor investment knowledge. A lack of understanding about different investment options, risk management and long-term financial planning can lead to missed opportunities for wealth accumulation.

Insufficient income

Low or inconsistent income can be a major obstacle to financial success, particularly for those in the Asset Limited, Income Constrained, Employed (ALICE) population. This barrier can manifest in several ways:

  • Living paycheck to paycheck. Many individuals struggle to cover basic expenses, leaving little to no room for savings or investments.
  • Limited ability to build emergency funds. Without sufficient income, it becomes challenging to set aside money for unexpected expenses or financial shocks.
  • Reduced capacity for long-term planning. When focused on immediate financial needs, individuals may find it difficult to allocate resources toward retirement or other long-term financial goals.

High levels of debt

Debt can be a significant barrier to financial success, impacting both short-term financial stability and long-term wealth accumulation. Common debt-related challenges include:

  • Credit card debt. High-interest credit card balances can quickly accumulate, making it difficult to allocate funds toward savings and investments.
  • Student loan debt. For many, student loan payments represent a significant portion of monthly expenses, limiting the ability to save for other financial goals.
  • Mortgage or rent burden. When housing costs exceed 30% of income, it can strain overall financial health and limit the ability to save and invest.

Market volatility

The unpredictable nature of financial markets can create significant challenges for individuals trying to build and preserve wealth. Key issues related to market volatility include:

  • Emotional decision-making. Market fluctuations can lead to panic selling or impulsive investment decisions, potentially derailing long-term financial plans.
  • Reduced confidence in investing. Volatility may cause individuals to avoid or limit their participation in the stock market, potentially missing out on long-term growth opportunities.
  • Difficulty in retirement planning. Market volatility can complicate the process of projecting future investment returns and determining appropriate withdrawal rates in retirement.

Unexpected life events

Life is unpredictable, and unforeseen circumstances can have a significant impact on financial stability and long-term success. Some common unexpected events include:

  • Job loss or income reduction. Sudden changes in employment status can quickly deplete savings and derail financial plans.
  • Medical emergencies. Unexpected health issues can lead to high medical bills and potential loss of income during recovery periods.
  • Family-related expenses. Divorce, the birth of a child or the need to care for aging parents can all create significant financial strain.

How can "bold action" contribute to financial success?

Rebecca Rickert, head of communications at Empower, notes that “fortune favors the bold, and people feel success is within their grasp with the right combination of dreaming and planning.” This sentiment encourages a proactive approach to retirement planning, emphasizing the importance of setting ambitious goals while also implementing practical, actionable steps to achieve them.

Bold action in retirement planning might include:

  • Starting to save and invest early.
  • Maximizing contributions to retirement accounts.
  • Exploring diverse investment opportunities.
  • Seeking professional financial advice.
  • Regularly reassessing and adjusting retirement strategies.

Conclusion

The path to financial success in retirement requires more than just accumulating wealth — it demands a strategic blend of disciplined planning, adaptability and informed decision-making. Empower's research illuminates the psychological and practical elements that shape financial success, suggesting that achievement lies at the intersection of ambitious goal-setting and pragmatic execution. For financial professionals and individuals alike, the key to navigating retirement planning lies in understanding these insights while developing personalized strategies that account for both individual circumstances and broader economic realities. By embracing the Factor of Four principles while remaining mindful of potential barriers, individuals can work toward building a retirement that not only meets their financial needs but also fulfills their vision of success.

Alliance America can help

Alliance America is an insurance and financial services company dedicated to the art of personal financial planning. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.

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