Many Americans are worried about their ability to sustain their lifestyle during retirement, and it's no wonder. According to the recent survey from Wells Fargo, a large portion of the country is ill prepared to fund its golden years: "Nearly a third (31%) of all respondents say they will not have enough money to 'survive' on in retirement...This increases to nearly half (48%) of middle-class Americans in their 50s." 

There are three Warren Buffett secrets for a prosperous retirement that anyone can use, whether you are already retired, or wondering how to start saving for a retirement that is decades away. Some of these "secrets" aren't even secrets. They're more like sensible lessons. However, as with so many things in life, actually acting on these lessons can be very different than knowing them, and far more challenging. Nonetheless, these financial techniques, if followed, maximize your chances to build and protect long-term wealth and income that can provide a prosperous retirement. 

Live beneath your means by maximizing utility
With a net worth of $63.3 billion, Buffett is one of the richest people in the world.

Yet a man who could easily afford his own island and a palatial estate lives in the same Omaha, Neb., home he purchased in 1958 for $31,500 ($259,445 in today's dollars). 

In addition, until 2011 Buffett drove a 2001 Lincoln Town Car (which was sold for charity). He replaced it with a Cadillac DTS that retailed for about $50,000. 

Why would one of the richest men in the world live such a humble life? The answer lies in one of the keys to achieving financial independence and true wealth. 

Buffett isn't a miser; rather, he understands the value of maximizing the utility of what you own. In an interview with the BBC, Buffett explained: 

How would I improve my life by having 10 houses around the globe? If I wanted to become a superintendent of housing I could have as a profession, but I don't want to manage 10 houses and I don't want somebody else doing it for me and I don't know why the hell I'd be happier. ... I'm warm in the winter, I'm cool in the summer, it's convenient for me ... I couldn't imagine having a better house.

This quote highlights something my Motley Fool colleague Brian Stoffel recently articulated as "the ridiculous expectations of the middle class." Rather than save to accrue wealth, many Americans today want to skip ahead to living as if they were wealthy. Brian notes that many families own a car for every individual, pay exorbitant monthly cell phone bills, own expensive "toys" such as motorcycles, and, through lack of budgeting, vastly overpay for groceries. In addition, the average American spends $1,092 annually on coffee and $1,924 on lunches.

Don't get me wrong, I'm not saying that you can't enjoy your hard-earned money. However, I do advise looking at the utility of your expenditures. By asking yourself if that purchase is really useful you'll find it a lot easier to cut your spending, save, and invest for retirement or any other major life goal. 

Invest in the right portfolio
A 2012 Yale study analyzed Buffett's investing success and came to a surprising conclusion: "We show that Buffett's performance can be largely explained by exposures to value, low risk, and quality factors." 

Looking at the top five stock holdings in Buffett's Berkshire Hathaway (NYSE:BRK-B) shows that Buffett is a big proponent of easy-to-understand, cash flow generating businesses that have long track records of excellent management and strong, durable competitive advantages.

Company Yield Long-Term Dividend Growth Record Annual Operating Cash Flow ($Billion)
Wells Fargo 2.70% 9.47% over 42 years na
Coca-Cola 3.10% 12.01% 52 years 10.8
American Express 1.20% 7.22% over 37 years 8.9
IBM 2.30% 14.26% over 52 years 17.3
Walmart 2.60% 23.33% over 40 years 23.9
Average 2.38% 13.26% over 44.6 years 15.2
S&P 500 1.96% 5.05% over 24 years  

Sources:, Yahoo Finance,

What's one of the easiest ways to ensure a company has these qualities? Well a good rule of thumb is that the company rewards shareholders by returning profits to them in the form of dividends and grows its dividend consistently over long periods of time. A long-track record of strong dividend growth, as exemplified by Buffett's top five holdings, requires management to innovate to remain competitive during changing economic/technological eras. At the same time, a long-term commitment to dividend growth keeps management from being overly aggressive and foolhardy when it comes to risks that could potentially destroy large amounts of shareholder wealth.

This ability of above-average yield and dividend growth to act as a proxy for high-quality companies is perhaps why this kind of investment has historically been the best performing class of stock.

Dividend Policy Annual Return 1972-2004
S&P 500 8.5%
Nondividend payers 4.3%
Dividend cutters and eliminators 5.2%
Dividend growers 7.2%
All dividend payers 10.1%
Dividend growers and initiators 10.6%

Source: "DIVIDENDS, METALS, AND 1960 REPLAYS," Ned Davis Research.

For example, a 2004 study by money manager Ned Davis found that between 1972 and 2004, high-yield dividend growth stocks were the best performing class of equities

Similarly, a 2008 study by asset manager Jack Gardner discovered that between 1968 and 2007, the top 100 dividend-paying stocks in the S&P 500 beat the overall index by 28.4% annually. In fact Gardner concluded that a portfolio of high-yield dividend growth stocks could help retirees to safely increase their maximum drawdown, or their annual spending amount, on their portfolio from 4% to 5% annually, a conclusion affirmed by William Bengen, the father of that modern 4% rule of thumb. 

Temperament: Make better decisions by keeping a cool head
As my Motley Fool colleague John Maxfield recently noted, investors often fall prey to their emotions, piling money into stocks when prices rise and selling when prices crash. 

This is why investors underperformed the S&P 500 by 4.2% per year over the previous two decades. As Buffett told Businessweek in 1999: "Success in investing doesn't correlate with I.Q once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

Achieve your dreams
Retirement can be a scary thing, especially if you feel financially ill prepared for it. These three lessons from Buffett -- living below your means/saving, investing for the long term into a high quality, high-yield dividend growth portfolio, and mastering your emotions so you are buying shares as the market crashes -- have been proven by countless studies to be the key to financial prosperity. All told, these common-sense approaches to money and investing, although easier said than done, are well worth taking the effort to apply to your own life. If you can achieve them then you'll be well on your way to achieving your financial dreams, including a prosperous retirement.