Motley Fool Hidden Gems Investing - Learning From the Happiest Retirees

Episode Date: August 9, 2025

For more than a decade, financial advisor and author Wes Moss has surveyed people near and in retirement. In Part 1 of this two-part discussion with Robert Brokamp, Wes shares the financial and non-financial metrics and habits of the happiest retirees. Also in this episode: - How the current bull market compares to those of the past - Estimates for the future returns from stocks - How to make more on your cash Tickers discussed: SGOV Host: Robert Brokamp Guest: Wes Moss Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Robert Brokamp How does the current bull market compare to those of the past? What can we learn from the happiest retirees? You're listening to the Saturday Personal Finance edition of Motley Fool Monday. I'm Robert Brokamp and this week is part one of my discussion with financial advisor and author Wes Moss about his research on the financial and non-financial characteristics of a fulfilling retirement. But first, let's start with last week in money. And our first item comes from Jerrion Timmer, Director of Global Macro at Fidelity Investments, who puts out an interesting report each week. And his recent edition pointed out that the current bull market in U.S. stocks

that began in October of 2022 is now 33 months old and has produced an 84% gain. And no, the tariff tantrum from this past spring didn't technically end the bull market, though it came pretty close. According to Timmer, since 1960, the median bull market lasts 30 months and produces gains of 90%. So the current run is right about at the median in terms of length and gains. However, what's somewhat different this time is breadth. Not all stocks are posting extraordinary gains, and Timmer wrote that only 35% of stocks are outperforming the index. He found that only two bull markets had similarly low breadth figures, and they were the 1970 to 1973 rise of the so-called 50-50 and the 1998 to 2000 tech boom. Both of those bull markets were followed by

bear markets that cut the S&P 500's value in half. This current bull market has been driven primarily by tech-oriented growth stocks with a heavy emphasis on AI-related companies, which brings us to our next item, and it comes from Renaissance Macro Research, also known as RenMac, which calculated that investment in AI, including both equipment and software, has added more to GDP growth this year than consumer spending. And that's really remarkable because consumer spending usually drives 70% of the economy. So there are two main takeaways here, at least in my opinion. One is that investment in AI has been massive, but also that consumer spending and demand is sluggish. To quote a recent Wall Street Journal article, consumer spending stagnated in the first

half of this year, according to federal data issued last week, and the CEOs of Chipotle, Kroger, and Procter & Gamble, among others, who are telling investors that their customers are more strapped or appear to feel that way. The bottom line here is that if it were not for capital expenditures related to AI, both the stock market and the economy would not be looking nearly as rosy. And now we come to the number of the week, or actually numbers, and they are 3.3% to 5.3%. That is the range of annualized returns that Vanguard expects from U.S. equities over the next decade, according to a recent report. And that, of course, is well below the historical long-term average of 10%, and below the 15.3% the S&P 500 has returned on average over

the last five years. The reason for Vanguard's lower expectations, well, U.S. stocks trade well above the firm's estimate of the market's fair value. However, they do expect returns that are around two percentage points higher from value stocks, small cap stocks, and non-U.S. developed stocks. Now, Vanguard isn't alone with their muted expectations. Just about any firm that estimates the future returns from stocks expects that they will be below average. And that includes some of my colleagues here at The Motley Fool, specifically the analysts in our hidden gem service. In a recent article, they provided their estimate for returns from the S&P 500 for the next five years, and their range is 7.8% to 8.2%. So more optimistic than Vanguard's expectations for

the next decade, but below average nonetheless, for various reasons, including that U.S. equities account for 60% of the value of all equities worldwide. That is more than 10 percentage points above the historical norm. The S&P 500's PE ratio is more than 30% above the historical average. And then there's the Buffett indicator, which is the ratio of the entire value of the stock market to GDP. It's sort of like a price to sales ratio for the market. The current reading is 210%, which is more than twice the historical norm. So what should you do with all these prognostications? Well, there's no guarantee they'll be right. It's very difficult to predict what the market will do. And many firms have expected sub-average returns from U.S. stocks

for the past several years. And frankly, they've been proven wrong. Here's why I think these estimates matter. Over the last couple of Saturday episodes, I've encouraged you to use online tools to calculate whether you're on track to reach your financial goals. And I named a couple of specific tools to consider. But whatever tool you use, you generally have to input a projected return on your investments. And at current valuations, I think it's likely too optimistic to assume you'll earn 10% a year over the next five to 10 years. When I run my numbers, I assume my investments will earn 5% to 6% while I'm still working, and then around 5% in retirement, and then I adjust my monthly savings requirements accordingly. I hope my portfolio has higher

returns, but I don't want my retirement or other goals relying on double-digit annual gains. Next up, my discussion with Wes Moss when Motley Fool Bunny returns. And what better way than with a delicious Pret Organic Coffee, starting at just $1 all day, every day, now until December 31st. At participating A&W locations in Ontario. We all want a happy, healthy, and wealthy retirement. But what does the research say about what it takes to achieve those goals? Well, here to tell us is Wes Moss, a certified financial planner practitioner, the host of the Retire Sooner podcast, and the author of

What the Happiest Retirees Know. Wes, welcome to Motley Fool Money. Robert, so good to be here. Very good. Excited. Well, I'm glad to hear that. And I'm excited for you to share a lot of what you've learned, because you've been working on this for years. You've been doing multiple surveys of retirees and near-retirees for many years. Plus, you've been an actual financial advisor for more than two decades. And you've determined that the happiest retirees tend to have certain habits, have certain characteristics. But let's start with what inspired you to start doing this research? When I was a new dad, I remember there was a popular book, and it was called

happiest baby on the block and it's supposedly that book helped you soothe your baby and make everything easier did it work for you no it didn't work because first of all you can't I thought I thought of the when I first heard this I thought well how do they know if the baby's happy there didn't you can't ask a baby you can't talk to a baby and the I guess you of course you the parent can determine yeah my kid was happy they did they cried less than they maybe otherwise but it just reminded me or made me think, well, why wouldn't somebody write a book called what the happiest retiree on the block. And we could go. And what if we were to be able to go talk to a thousand or 2000 retirees, divide them up into two camps, happy versus unhappy,

and then study the habits between those two groups. And that was the original idea. It came from a baby book it morphed into a long really journey it's been 15 plus years now of researching the financial habits the consumer habits the lifestyle habits the social habits all together that tips folks if we look at america as a population and my most research my most recent research study again is is mapped to the u.s census so it's it's statistically significant differences between these two very different groups and we all want to end up in the happy not the unhappy retiree group so i've continued that research and i think it's really it's a powerful guide to have the financial side of retirement which you do such an amazing job of

simplifying and having people be able to digest it and understand it but then pairing all the lifestyle, social, community side, and putting those two together so that we have this fruitful, free retirement. Let's start with the topic that probably first comes to mind for most people, which of course is money. So how much in terms of just liquid investable assets, not net worth, but the liquid investable assets, do the happiest retirees tend to have? When I first did this, again, let's go back approximately 15 years. The way I looked at it in the very first book i did about this called you can retire sooner than you think five money secrets are the happiest retirees the there was this inflection point that i found and if you

looked and you can look at the data a million different ways but you can look at the average you can look at the median and i found that the median at that time this is again a long time ago the median to cross over from the unhappy to the happy group on at well the median was five hundred thousand dollars in liquid now that's not net worth that's liquid retirement assets and that was the number i used for a very long time and that was controversial in a couple ways one i remember getting feedback well that's so much money that's for rich people it takes forever to get to that and then on the other side of the equation was that's not nearly enough well 500k that's that's not going to do it so the number nobody i don't know if some people

didn't like the number. Some people liked the number. And that was where I stood for a long period of time. If you look at going, if you go back to, let's say, 2013 and you'd been in a balanced fund, let's call it a 60-40 allocation, 60 stock, 40 bond, and you withdrew funds from that. So you started with 500, you took out 4% rule. So you started with 20K and ratcheted up for inflation. That would be approximately, depending on where you are, but I'm generalizing here, you'd still have, you'd not, you not only, you wouldn't have 500, you would have taken out about 300 and you, and you'd still have about a million dollars left. Wow. So as low as that sounded back then, it very likely work. If somebody had taken that approach again, there's

lots of variation there, but it's very, uh, it's very realistic that that could have worked out. right today i look at it in a more nuanced way the way the research now in the most recent study is a little more nuanced and i think of it in three zones and here it's the red red yellow and green zone we want to get to the happy retirees want to get to the green zone when it comes to liquid net worth those numbers i look at them a little differently today you're in the red zone meaning that you're you're well below the happiness baseline in america so it's like the opposite of alpha you're way under the happiness base zone if you have a hundred less than 100k that makes sense the the yellow zone from 100k to just under a million

happiness levels are around the u.s baseline slightly above but just let's call it right normal happiness in america but once you cross into the green zone which is the million dollar category and up three million dollar category that's where you see happiness levels well above the u.s happiness baseline and that is the zone we want i want people to really focus in on so today that number is a million dollars plus it used to be 500 but we all know we've gone through massive inflation so it makes sense that those numbers would be bigger or more significant but that's where we stand today i also look at income data again getting into that green zone for american families and this is for all income combined social security pension whether you

of rental income, et cetera, plus investment income, we want to get to the $100K and above. That's what gets us to the green zone. So there's a lot of other financial habits, but those are two of the big ones that get us from red to yellow and eventually to green, and that's where we want to be. So those are investable assets. What else did you learn about other ways that the happiest retirees manage their money apart from just their portfolios? So there's a couple of things. One, I've always been interested in mortgage data because we have this weight. Americans have a weight and it's really our biggest bill. You could argue that health care can be similar or higher now. But really, for most of

our lives, a mortgage and paying for our shelter is the number one big bill. And what I found in the most recent data is that either a paid off mortgage or a mortgage that's going to be paid off or scheduled to be paid off within nine years or less, which is still a fair amount of time. That's what gets people into that happiness green zone. So there's something very powerful about seeing the light at the end of the tunnel. Multiple and diversified income streams. So happy retirees tend to have more and different streams of income so that they have diversification of how they're getting paid. Those are two financial habits beyond a portfolio that really, really tip the scales towards financial peace and feeling confident in financial decisions.

I think one underappreciated aspect of having the mortgage paid off by the time you retire is that it lowers your expenses. And in retirement, the more your expenses, the more you have to take out of your portfolio, the more that you have to take from your traditional IRA, which increases your taxes, right? If you have a $2,000 mortgage, paying $24,000 a year, you take $24,000 out of your traditional IRA, you've just bumped up your tax bill by over $5,000 if you're in the 22% tax bracket. So you did that this year. The following year, you have to pay that tax bill. Where is that money going to come from? You have to take more money out of your traditional IRA, which will affect your tax bill the following year.

So there's a real value to going into retirement with lower expenses because you can leave more of your money alone. Keeping your tax bracket as low as possible. The other thing, Robert, that I think really impacts almost all of us and was really eye-opening from the last research study I did is that people are very afraid of running out of money in America. And I see it at every asset level. Now, naturally, as you would expect, the percentage of people worried about, quote, running out of money goes down as asset levels go up. But it's still really prevalent even in the million-dollar category. So almost 50% of Americans that have a million dollars or more are worried about running out of money. Even in the $3 million category, the $3 million-plus

category still one in four people worried that one of their top financial fears is running out of money so there's obviously it's not just about having a larger nest egg and lots of cushion there's more to it than that and that's what was so eye-opening about the most recent research i did is that that doesn't three million plus doesn't necessarily solve though that fear and anxiety of running out for it doesn't it doesn't solve it for everybody so there's more to the story Where some see heroes and others see egos, Bloomberg sees the era of billionaire athletes. While others follow the noise, we follow the money. Learn more at Bloomberg.com. It's time for our Get It Done segment. Now, you surely heard the phrase cold, hard cash.

Harkens back to the days when cash came mostly in the form of coins. In fact, the roots of the phrase go back as far as the 1600s. But as far as I'm concerned, cash is warm and cozy, like a comfortable bed at the end of a long day. Now, I know that cash isn't very exciting. Perhaps it might help to reframe it in terms of the many benefits it provides. You can think of it as dry powder, a means to buy stocks when the market is down. Portfolio flotation device, because it holds up your portfolio when most investments are sinking. Could be a family protection plan, a source of funds in case of income disruption or expense eruption, or you can just think of it as a heated blanket because it can help you sleep at night.

All that said, there's a lot of cash out there not earning very much. According to the FDIC, here are the average interest rates on typical bank products. So for checking account, the average rate is 0.07%. Savings account is 0.38%. One-year CD, 1.63%. And three-year CD, 1.34%. Dear listener, you can do much better. With a little effort, you should be able to earn close to or above 4% on many banking products. Several websites highlight higher yielding options. We have one here at The Motley Fool, which you can visit by going to fool.com forward slash money forward slash banks. Then there's the cash in your brokerage account. The default cash option may be paying you little to nothing. Check with your broker

to see if you have access to a higher yielding sweep account. Other options to consider are money market funds, individual treasury bills, or ETFs that invest in treasury bills, such as the iShares zero to three month treasury bond ETF with the ticker SGOV. Just keep in mind that funds, ETFs, T-bills, bonds in general, they might not be quite as liquid as cash. So it might take a day or two for a sell order to settle. Also, they aren't backed by the FDIC as most cash products are that you get from a bank. Now, as you may have read, there's a lot of drama these days about if and when the Federal Reserve will cut rates. The futures market currently predicts that a 0.75% reduction in the Fed funds rate is the likeliest scenario by the end of 2025. If that

happens, rates on cash accounts with variable rates, such as savings accounts, money markets, those are going to head lower. So it might make sense to lock in current rates with some of your cash allocation by buying CDs or individual treasuries. Plus, keep in mind that treasuries have the added benefit of being free of state income taxes. And that's the show. Make sure you tune in next Saturday for part two of my discussion with Wes Moss. Thanks to Dan Boyd, who's the engineer for this episode. And as always, people on the show may have interest in the stocks or funds they talk about. And The Motley Fool may have formal recommendations for or against. We 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. I'm Robert Brokamp. Fool on, everybody.