| I recently conducted a study on the habits and traits of happy versus unhappy retirees for my book, You Can Retire Sooner Than You Think – The 5 Money Secrets Of The Happiest Retirees. I had 1,350 retirees across 46 states participate in my study, and learned a multitude of factors that unhappy retirees all have in common. Here are the three most important to avoid: 1. They Have 10 Or More Years Left On Their Mortgage Through my research I found a correlation between happiness and retirees who had either paid off their mortgage or they are within five years of having it paid off when they retired. Unhappy retirees generally had 10 or more years until their house will be completely paid off. Removing a monthly mortgage payment from your budget is not only liberating, but also allows you to direct more of your retirement income towards your core pursuits. 2. They don't define the purpose of their money
After saving year after year, unhappy retirees seem to believe that the money from their retirement fund alone will create a happy retirement for them. Money itself, though, will not give you happiness; instead, it's how that money is used that ultimately creates a happy retirement. Happy retirees go into retirement with plans to travel, volunteer, etc. and generally put their retirement fund towards following their passions. In fact, I found that happy retirees have at least 3.5 core pursuits. These are essentially hobbies on steroids, and often what directs the purpose of happy retirees' money. My unhappy retiree group only averaged 1.9 core pursuits, so if you find yourself with limited interests I suggest that you go out today and find a new sport, nonprofit or social club to join and enjoy. 3. They Have A "Rich Ratio" That Is Under 1 I created the Rich Ratio formula several years ago, and have found it helps individuals and families easily understand their money. This formula is very simple: the amount of income you receive divided by the amount of money that you need. (This calculation should be done with after-tax amounts.) To calculate your Rich Ratio in retirement, simply take the amount of monthly income you should or do have in retirement (Social Security + pension + any additional steady income streams) including what your nest egg should produce, and divide it by what you expect to spend each month to live the retirement lifestyle that you want: Have / Need = Rich Ratio. Let's look at some examples: Emily Emily plans to travel the world in retirement, so she'll need $8,500 a month. She has a pension from her work at the cable company that's $1,100/month, plus a Social Security benefit of $1,800/month. She has saved $1,000,000 in her 401(k). Emily's Haves = $1,100 (pension) + $1,800 (Social Security) + $4,100 (5% of her 401(k) on a monthly basis) = $7,000 Emily's Needs = $8,500 Emily's Rich Ratio = $7,000/$8,500 = 0.82 Carl Carl plans to fish on the lake by his house and volunteer at a local homeless shelter in his retirement, so he needs $4,000 a month to retire comfortably. He has already paid off his house, so he's living mortgage free. Carl also has a pension of $1,300/month. He receives $1,800 from Social Security each month and he has $400,000 in his 401(k). Carl's Have = $1,300+ $1,800 + $1,650 (5% of his 401(k) on a monthly basis) = $4,750 Carl's Need = $4,000 Carl's Rich Ratio = $4,750/$4,000 = 1.19 Despite the fact that Carl has less money in his retirement account and a smaller net worth than Emily, Carl is actually much more likely to be a happy retiree than Emily. Now I'm not saying retirees shouldn't travel, but you should plan a lifestyle that brings you joy while also fitting within your budget. Retirement should be a time to fully devote your energy and finances to the activities and people you love. If you're able to keep this in mind as you enter retirement, and avoid falling into the above bad habits, you'll be setting yourself up for a very happy retirement. Cheers to a happy retirement,
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