Motley Fool Hidden Gems Investing - How Much Does It Take to Be Happy in Retirement?

Starting point is 00:00:00 How much money does it take to be happy in retirement? I'm Robert Brokamp, and I get an answer to that question in part one of my conversation with financial advisor and author Wes Moss on this Saturday personal finance edition of the Motley Fool Hidden Gems Investing Podcast. We all know that it takes a certain amount of money to be able to retire, but money alone won't make your retirement years golden. And if there's one guy who knows an awful lot about the financial and non-financial ingredients to a happy retirement, it's Wes Moss. Wes is a certified financial planner, the chief investment strategist at Capital Investment Advisors in Atlanta, the host of the Retire Sooner podcast, and the author of

Starting point is 00:00:42 five books, including his latest, The Retire Sooner Method, The Five Secrets Behind America's Happiest and Unhappiest Retirees. Wes, welcome back to the show. I don't know if you remember this, but about a year ago, the last time I was here, I was testing out title ideas for this exact book. And you were the one that greenlit the retire sooner method. I look forward to the 5% of sales that I will get because I helped you with your title. Yes, I do remember that now that you are reminding me. And let me just say, I really enjoyed the book. I've been following your work for many years. In fact, you've been doing these surveys and studies for well over a decade. And your most recent book is based in large part on your most recent research. So

Starting point is 00:01:27 tell us about the latest survey and how you use it to identify what you call H-ROBS, the happiest retirees on the block. I realized only in the last month or so, and I've never really put a label on, someone asked about like, what's your process about writing a book. And the reality is that most of these projects are outcroppings of me doing radio and podcasts. And what I do many times a week, I do a show on good old-fashioned radio, if that still exists, in Atlanta on WSB radio called Money Matters. And I have been for, I think almost 18 years at this point. And I start with economic data or market data or historical data or demographic data as another example or a study. And then I try to draw a

Starting point is 00:02:22 picture of that, literally a visual. And then I usually have the narrative on podcasts and radio. And that's really what has happened with these books, particularly with my first book about Money and Happiness and Early Retirement called You Can Retire Sooner Than You Think. I really wasn't aiming to write a book. I wanted to study the population and to find unhappy retirees and see what they do and find happy retirees and see what they do. And then really that was for financial content because it was so important to me to emulate the population that we all want to be like.

Starting point is 00:02:56 Of course, it's not just about money. We want a happy retirement and then all the pieces underneath that get us there. So the process I go through is research first, then charts and analysis, and then narrative, which in this case has led to my most comprehensive, most up-to-date book that I've ever done. And the survey slash research, I guess it's survey questions and then it's research to go out and get it to be mapped to the U.S. Census. We need people from every single state on a relative basis, an equal number of male, female, et cetera, to be able to really have data that we can rely on and a certain size so that the sample set gives us a degree of accuracy that we're comfortable with and that I can feel good about first. And that took a really long time this time around. It's funny when your research firm is helping you after you figure out what you want to ask, they go out and it takes a long time for them to really collect the data to make sure it's mapped to the U.S.

Starting point is 00:04:00 Census. The first 90% goes pretty quickly, and then the last 10% takes a long time. And then you get back this file that has 54,000 cells of data in a Google Sheet or an Excel document. and all you see is color coding and capital versus letters versus small cap letters that show the significance from this cell to that cell so that is just hieroglyphics in the beginning and thankfully i have a team here of data wizards that can help assimilate and really explore that data then get it into some level of visual to see the relationships the ones that really stood out

Starting point is 00:04:40 to start to be able to understand what all the research really says and what it tells me, how does it inform, and what can we learn from it? Once you get the initial graph, then I usually draw these out. I draw every day, whether it's a pie chart or a house or some icon or a retirement timeline, I draw constantly. And I love to then recreate these charts. So some of the drawing in this book is for me doing it. Some of it is going to an illustration firm to make it even more professional than I can do. So the charts here are redone by an illustration firm based on the exact Excel spreadsheet chart of the one I drew. And that to me is the process I go through with research. So not everything makes it in the book. Not every

Starting point is 00:05:27 relationship is significant and they kind of get thrown on the cutting room floor and the really powerful data points that say, this is what this happy population does. And this is what the unhappy population doesn't. Here's the relationship between those two. That's when I get super excited to be able to have a story to tell and to help inform what most Americans would like to do is shave off a couple of years of working and be able to have financial freedom sooner and make sure that when we get there, we're doing the lifestyle habits that put us in the happy retiree camp and avoid the unhappy camp. And that is my mission in the world. On our wall here in our office, it says helping families find happiness in retirement. I add as soon as reasonably possible

Starting point is 00:06:16 when I do my work. So that's the genesis of this. And it's so much fun when the light bulbs start to go off and you get to see these relationships and what we can learn. It's so exciting to me. the arduous part is getting it all into a book but now that the book is done the marathon part is over now i get to celebrate a little bit have some gatorade and talk about it maybe a you know mick ultra after all of those miles that to me is like the cool part of the fun part and being on shows like you which i've been here before and thank you for having me back but this is the fun part knowing your work like i do and then reading your book it seemed that you know some of the research confirmed the previous research. Some of it was new insights, and we'll get to those.

Starting point is 00:07:04 And some of it sort of like built on the previous research, but with updated numbers. And what better way than with a delicious Pret Organic Coffee Starting at just $1 all day, every day Now until December 31st You gotta try breakfast at A&W. At participating A&W locations in Ontario. New from Nespresso. Blend wellness into your coffee routine with the Coffee Plus range.

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Starting point is 00:08:11 Discover Coffee Plus on Nespresso.com. So let's start with something for which the number has changed, and it's likely a topic most people first think about when it comes to retirement, which is how much someone needs to have saved. So tell us about the updated money green zone. This started to get to me, and this is part of the reason I was coaxed into, pushed into doing, starting over. It's because my original book around this kind of research was almost 15 years old.

Starting point is 00:08:40 And I spent a year updating that book. And we'd gone through all this hyperinflation in America. And I wrongly assumed that I could just take my old research, update it for inflation. For example, in my original work around this, the retiree happiness inflection point for going unhappy to the happy group. was 500k now that was heresy 15 years ago even 15 years ago people said that's not nearly enough money to retire people also said that's way too much money i can never get there i got it from both sides when i updated that just purely for inflation the number came out to the mid 700s and as i tried to update the book and i spent a year doing it i spent a whole year doing it

Starting point is 00:09:32 At the end of that time, at the end of 2024, I just said, this is crap. This is just, you can't recreate and just dress up something you did a long time ago. And I don't know why committing to a full-blown everything research project is a little scary. I don't know if I want to redo all of this because I've been telling the world about all these habits for 12, 13 years at the time. and I guess I was worried that if I restarted it, it would contradict and then I'd have to redo everything. And there's a weird thing in the world we live in. You write an article and then 15 years later, guess what? It's still on the internet. So how do you account for that?

Starting point is 00:10:14 And then I got to the point where I remember I was sitting in my kitchen talking about how I was frustrated with the project that I'd spent a year on. And I said, you know what? I'm just going to start over completely. And I don't care if all the research comes back totally different, similar, not similar. I said, at this point in my career, I don't care. I need the actual data because I have to feel totally confident in it if I'm going to teach it. And I have to see that whatever it may be, that's the story to tell. Remember, data first, chart second, narrative third. So that to me was a leap. The numbers came back differently. So if somebody reads an article about money and happiness habits that I wrote about 12, 13 years ago, that is all superseded

Starting point is 00:11:00 by this, the money and happiness in America study I did that eventually became the book, The Retire Sooner Method, which is the green book now on Amazon. Yeah, the numbers are different. So it wasn't 500. I'm glad it didn't go with the inflation adjusted 743, I think it was. And before I give you that number, I looked at this in a different way than I've ever looked at it before, and I give credit to our chief investment officer here, who is a data wizard. As we went through all of this data, we said, we looked at the population. We said, well, what if we mapped this or charted this habit in relation to the baseline? So let's get a baseline happiness level for our entire study. Then we'll see if a habit takes us

Starting point is 00:11:45 above the baseline or below it, kind of like if you're managing a mutual fund, you want alpha. If you're managing a hedge fund, we want alpha. If the S&P is up 10%, my fund is up nine, I've got negative one. If it's up 15, I've got five points of alpha. That's a good thing. That's the way we did the visuals. And that's the way we interpreted this data. Essentially happiness alpha of a particular habit. And where alpha starts or happiness levels show that they rise well above the U.S. happiness baseline from a liquid investment asset perspective, the category where it starts to be a way above the U.S. happiness baseline is a million dollars. The next category where it still rises ever so slightly is the three million plus camp.

Starting point is 00:12:34 So as long as we get to that level, my data shows that in general, the population has significantly higher levels of happiness. Now, happiness can be defined a lot of ways, but there's peace of mind there. I looked at it, and the green zone for household income starts at 100K. And I think a lot of your listeners will be able to consume that quickly, and they'll get that. But there's also the red zone and the yellow zone where people go levels of happiness that are way below the baseline. And it just speaks to Americans, whether you agree with these numbers or not. Some people say that's not enough.

Starting point is 00:13:13 Some people say I can never get to a million. Those are the numbers that correlate to higher levels of retirement happiness and peace of mind. And that to me is really powerful. One of the aspects that you point out in your book about what makes someone happy, at least when it comes to the money. It's just the comfortability of knowing that you're not going to run out of money. Now until December 31st.

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Starting point is 00:14:25 or go with the flow and choose ginseng delight our new double espresso with ginseng extract whatever lies ahead don't change your morning let your morning change you discover coffee plus on nespresso.com and i thought one of the interesting insights from your book was that's a fear everybody has even people with a lot of money according to your book 39 of people with more than a million less than three million fear running out of money and even 25% of those with $3 million or more are worried about running out of money. And I know a lot of people hearing that will say, how can they possibly feel that way? But I think it's just a natural fear. In your book, you cite the study from Allianz that found that more people are worried

Starting point is 00:15:09 about running out of money than dying. So how do you manage your retirement in a way that you can feel good about the amount that you have once you're over in that green zone? Isn't that amazing? Now, if you look at the chart, the way we lay that out, yes, the fear of running out of money as a primary fear comes down as a percentage of the population within higher and higher asset bands, but it doesn't go away. I'm so glad that that resonates with you because that's a shocker to me that somebody with $3 million liquid, which, by the way, means they probably have a $6, $7 million net worth, they're nervous? That's a top fear running out? And I think if this is a financial educator, we can learn tactics that help reduce our money anxiety. Diversification. I talk about in the investment chapters here, my dry powder principle, which is three years plus of

Starting point is 00:16:06 safety assets in your overall allocations, knowing that the average bear market lasts 2.9 years. So there's some years behind that. Here's the education of why your portfolio could be structured like this. And that should reduce your anxiety. You don't need to worry about running out of money. And we'll follow the 4% plus rule. 4% plus rule works 98% of the time for 30 plus years. So you get all that education and you probably don't have that fear, but it only takes a couple of weeks, maybe a couple of months without revisiting that. And the headlines that we live in are so scary that all of that gets washed away like a tsunami on the beach. And all of a sudden, those houses are gone. That house of confidence and understanding, it just gets

Starting point is 00:16:59 wiped away. It's gone. And that's the reality of the underlying fear we have is not the headline. It's what the headline means for our money. And the word financial crisis and banking crisis and bear market and bear market with recession. What does that mean? Does it mean it wipes me out? I don't remember because I haven't looked at this for a month or two and I forget why I shouldn't have this money anxiety. And that's why the world of keeping ourselves feeling confident financially very much is an ongoing sport. It is not a one-time event. It's a constant reminder, education, reminder, education. And what I think holds that all together is written planning. And you can draw out a retirement timeline, either you by yourself or you with an advisor,

Starting point is 00:17:53 and just the act of drawing out a timeline, seeing what you have today, target retirement zone in the future, I'm going to save this much, here's about what I should have, take the 4% rule, apply it to that, plus Social Security, maybe a pension, some real estate income, and voila. I've done a conservative roadmap timeline that is one of the main elixirs in the world that we live in psychologically to reduce or eliminate the very deep-rooted fear so many Americans have, which is, hey, I just don't want to run out of money. Another interesting aspect of your research is the relationship of retirement and whether the mortgage is paid off. And I think it's tied to this to a certain degree, because if you're worried about running out of money, you're worried about covering your bills. And the mortgage is the biggest bill. And if you

Starting point is 00:18:45 don't pay it, if you really want to take it to the extreme, you're like, oh my gosh, I could lose my house. So tell us about your research in terms of retirement happiness and having the mortgage paid off. This is another good example of asking a similar question that I did almost 15 years ago and getting updated numbers. The vast majority of Americans have locked in low mortgages because we had zero interest rates for so long. By the way, home equity right now is about as much as it's ever been in the history of America. It's 71, 72% of housing value is equity, which is a remarkable number and a big part of why we have such a big wealth effect in America right now. But the psychological piece of the equation of no longer having to write a check

Starting point is 00:19:30 that's $2,000, $3,000, $4,000, $5,000 a month to a bank, something very significant happens as writing that check gets closer to not having to be part of your life anymore. Looking at U.S. retirement baseline, happiness levels jump once we get to nine years or less, which, by the way, that's still a lot of years. And then it stays in what I would call the housing money green zone. It continues to be well above U.S. happiness baseline on a happiness propensity level once our mortgage is paid off completely. Zero years. So I don't think retirees have to have their mortgage paid off when they stop working, but I think payoff should be within sight. It's shown clearly in this research in the book that that's a powerful part of the financial

Starting point is 00:20:23 equation. That's the end of part one of my discussion with Wes Moss. Tune in tomorrow for the rest of our conversation. Until then, thanks so much for listening. And thanks to Bart Shannon, the engineer for this episode and the tallest man in all of Fulham. As always, people on this program may have interest in the investments they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell investments based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes.

Starting point is 00:20:59 I'm Robert Brokamp. Fool on, everybody.

Motley Fool Hidden Gems Investing - How Much Does It Take to Be Happy in Retirement?

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