When planning for retirement, most people fret over one basic question: How much money will I need to last until I die?
Some experts encourage us to save 10% of each paycheck and pray for the best. Others say we should aim to save eight times our ending salary. Many of us still obsess over hitting that elusive million-dollar mark, despite the fact that fewer than one-third of Americans have managed to cobble together $1,000 for retirement.
In a new book, “You Can Retire Sooner Than You Think,” Atlanta-based investment advisor Wes Moss, offers an alternative to the traditional line of thinking. Rather than focus on a dollar amount to reach for, Moss decided to figure out what retirees needed to be truly happy in retirement.
“I wanted to go beyond simple income numbers,” Moss says. “I wondered what it really takes to get somebody to a point where they truly feel they have a cushion and they are also enjoying life.”
In 2012, Moss conducted an online survey of more than 1,200 workers who had either already retired or were fewer than 10 years away from retirement. He asked them questions about what type of cars they drove, where they shopped, how much their homes were worth, and, of course, how much they had saved for retirement. But he also asked about their passion projects, how often they went on vacation, what types of volunteering they enjoyed, whether or not they were satisfied with their lives, and how much time they put into their retirement planning before calling it quits. (Moss did not ask participants about overall debt levels like student loans and credit cards, but did include questions about their mortgage debt).
What he found was that more money doesn’t equate to more happiness. The happiest retirees didn’t all drive BMWs or take 12 European cruises a year, either.
Here’s what it takes to be a happy retiree:
1. Retirees’ happiness hit a wall once they reach $500,000 in savings.
The financial barrier separating an unhappy retiree from a happy retiree seemed to be right around the $500,000 mark, Moss found. In his research, happiness levels skyrocketed from retirees who had saved $100,000 and those with $500,000. But after hitting that half-million-dollar milestone, happiness levels plateaued even as net worth rose. The same plateau effect appeared when Moss asked retirees how much they spent each month. On average, unhappy retirees spent less than $3,000 a month. Happiness increased by 25% between the unhappy group and those who said they were “moderately happy” and spent about $4,000 a month. But after that, there was only a 6% increase in happiness levels between moderately happy retirees and extremely happy retirees, who spent more than $4,500 a month.
2. Happy retirees fill their time with three to four “core pursuits.”
Moss jokingly defines core pursuits as “hobbies on steroids”— the kinds of activities that fill retirees’ time when they are no longer working 9 to 5. On average, happy retirees participated in almost twice as many core pursuits than their unhappy counterparts — 3.6 vs. 1.9. Happy retirees were also more likely to pick core pursuits that were socially engaging, such as volunteering with nonprofits and sports.
3. Happy retirees pay off their mortgage early.
In his research, Moss found happy retirees were nearly four times more likely than unhappy retirees to be close to paying off their mortgage. More than one-third of happy retirees will have their mortgage paid off within eight years, compared to less than one-quarter of unhappy retirees. Nearly 30% of happy retirees said their mortgage payoff date is less than five years off, compared to just 5.6% of the unhappy sect. Any retiree who’s managed to pay off their mortgage debt should be thrilled — more seniors today are carrying mortgage debt in retirement than ever before.
“To me, this was kind of a real eye opener,” Moss says. “You hear all day long that there is no reason to pay off a mortgage early and you can make a great economic case for that. But my research shows the elimination of mortgage is really important, not just financially but also psychologically.” Happy retirees weren’t all living in McMansions either — the average value of their homes was $355,000 – not far above the national average of $319,200. Unhappy retirees’ homes were worth $273,000 on average.
4. Happy retirees have at least two to three sources of income in retirement.
On average, the happiest retirees reported having between two and three different source of income — the most commonly cited income sources were Social Security, investment income, real estate income, a pension, and part-time work — while unhappy retirees had between one and two. “I’m a huge believer in getting as many tributaries of income flowing into that main retirement income stream as possible,” Moss says.
5. Happy retirees are “masters of the middle."
On average, happy retirees live off of just over $53,000 a year — not too far off the national household income of $51,000.
Moss also found that they aren’t overly interested in luxury brands. The unhappiest were more likely to drive a BMW, while happy retirees preferred Lexus. Moss calculated that over five years, owning a Lexus cost 16% less than a BMW. Happy retirees’ shopping tastes were also relatively modest, with the majority saying they preferred middle-of-the-road department stores, like Kohl's and Macy’s over Neiman Marcus or Saks. “They’re masters of the middle,” Moss says. “They aren’t super, uber frugal, but they aren’t shopping at thrift stores either.”
6. Happy retirees spent at least five hours a year planning for retirement.
Unsurprisingly, the happiest retirees were the ones who planned well for their golden years, spending at least five hours a year preparing. Nearly half (44%) of unhappy retirees said they weren’t satisfied with how much thought they put into retirement. Five hours a year may not seem like much (Moss says most happy retirees spent more than that), but once you’ve set up a solid financial planning framework, the truly time-consuming part is basically over. From that point on, it’s all about checking in with your goals and maintaining your strategy. “Retirement planning is a long-term proposition,” Moss says. “It takes a couple of weekends a year to stay on track. You can gain a lot of grown by maintaining that garden.”
7. Happy retirees are more likely to be married.
As common as divorce is in the U.S. today, the overwhelming majority of happy retirees were married (76%) and only 9% were divorced. Less than half of unhappy retirees were married, while one-quarter were divorced, Moss found. This is right on par with what past research has shown about levels of satisfaction in married and unmarried people — over the long term, married couples are much happier. It’s fairly obvious why two may be better than one in this scenario — dual incomes can make a huge difference in a couple’s financial outlook. On the flip side, divorce not only reduces both parties’ income but is also expensive to go through.
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