3 mistakes of unhappy retirees

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There’s so much talk today about the financial side of retirement.  Save more, invest more, have more, but for what?

For you the answer may be financial independence, or maybe just the ability to stop working at a job you don’t like.  There’s more to retirement than just saving a certain amount of money, though, and there are plenty of people who have money to retire but are still not happy. 

How can you avoid an unhappy retirement, and what can we learn from unhappy retirees? 

My questions on retirement and what makes retirees happy vs. unhappy have long been on my mind.  The subject prompted my intensive research on this seemingly confusing matter.  In a quest to find some answers, I conducted a comprehensive study which consisted of more than 1,350 retirees across 46 states.  My findings became the basis for my new book, You Can Retire Sooner  Than You Think.  My study and questions were not just focused on the financial situations of these people, but on their overall quality of life.

Among the many interesting conclusions I was able to make was the fact that there were significant differences in how happy vs. unhappy retirees spent their money and found purpose for their money. 

Read more: 8 dos and don’ts for young workers planning an early retirement

Below are 3 major mistakes that the unhappy retirees in my study had in common:

1.  Unhappy Retirees Can’t Define the Purpose of Their Money

A lot of people moving into the retirement years are under the (false) impression that the money that they have saved alone is going to make them happy once the big day comes.  This is a common misconception, and one that I like to alert people to before they fall into the trap of thinking that money alone is going to make them happy.

The happiest retirees understand that the point of saving is to enable them enjoy the things that they love during retirement.  Whether this is traveling or donating to causes closest to their heart, happy retirees have a purpose for their money– and unhappy retirees do not. 

2.  Unhappy Retirees Have a ‘Rich Ratio’ That Is Under 1


My Rich Ratio formula is something I created several years ago and have consistently used to give individuals and families an easy way to understand their money.  The Rich Ratio is very simple: It is the amount of money that you have in relation to the amount of money that you need.   (For purposes of illustration note that this calculation should be done with after-tax amounts) 

Anyone can calculate their own Rich Ratio.  Simply take the amount of monthly income you should have 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 you want:  Have / Need = Rich Ratio.

Example 1: Brooke

Brooke wants to travel in retirement, so she needs $8,000 a month. She has a small pension from her time working with a cable company ($1,000/month), plus Social Security at age 62 of $1,800/month. She has saved $1,000,000 in her 401(k).

Brooke’s Have = $1,000 (pension) + $1,800 (Social Security) + $4,100 (5% of her 401(k) on a monthly basis) = $6,900

Brooke’s Need = $8,000

Brooke’s Rich Ratio = $6,900/$8,000 = 0.86

Brooke’s Rich Ratio is below 1, so we can’t consider her to be “rich,” and she unfortunately falls into our unhappy retiree group.

Example 2: Steve

Steve needs just $4,000 a month to retire comfortably.  He has already paid off his house so he’s living mortgage free.  Steve also has a small pension of $1,300/month. He receives $1,800 from Social Security every month and he has $400,000 in his 401(k).

Steve’s Have = $1,300 + $1,800 + $1,650 (5% of his 401(k) on a monthly basis) = $4,750

Steve’s Need = $4,000

Steve’s Rich Ratio = $4,750/$4,000 = 1.18

Despite the fact that Steve has less money in his retirement account and a smaller net worth than Brooke, Steve is actually set up to be a much happier retiree than Brooke. 

Read more: How much you need to save to be a millionaire by 65

3.  Unhappy Retirees are Saddled With Housing Related Debt

One common trait of happy retirees is that they have either paid off their mortgage or they are within 5 years of having it paid off when they retire. Conversely, a large percentage of unhappy retirees have 10 or more years until their house will be paid off.

So, if you are going to move in retirement, it should be into a house that you can pay off completely so you aren’t saddled with extra years of mortgage payments. On top of a new mortgage, buying and moving to a new house often requires moving costs, new furniture, drapes, rugs, cable and TV hook ups, etc.  The costs can quickly add up.

The same way of thinking applies to home renovations.  While you quite possibly have been wanting to get certain projects done for years and now have the new found free time to do so, don’t jump in too quickly.  Before you remodel that kitchen or finish your basement, remember that each project has an uncanny way of spurring on another project.  Before you know it, you are in the middle of a significant re-model and all the while the money—that was supposed to last in perpetuity—in that retirement nest egg is flying out the window. 

Keep my 2 rules in mind if you even think that you are going to want to move or do home improvements:

  • If you are planning to move while in retirement, be sure that you can move into a new home without having a mortgage—essentially swapping your current home equity (or paid off mortgage) for a home owned “free and clear”. 
  • Similarly, if you know that you are going to want to do some home improvements, try your best to take care of them before you stop working. 

This should be a time when you are able to fully devote your energy and finances to doing the things you love, so have a plan before you retire.  By following a few simple rules, you too can avoid being an unhappy retiree. 


Read more: How to avoid losing $100,000 in retirement

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