Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
My registered investment advisory firm (RIA) manages about $1 billion in client assets. That’s like having two Queen Elizabeths on the client list at about $500 million each. Or four Mitt Romneys with about $250 million apiece. Or 10 Roger Federers at around $100 million each.
Those are pretty impressive names and numbers. But I’ll stick with my firm’s 1,000 clients, who average about $1 million in investments. None of these people are famous. Very few would be considered extremely wealthy. But they are among what I would consider the “richest retirees on the block.”
These folks are doing exactly what they want in retirement:
• Traveling overseas a couple times a year.
• Spending time with their grandchildren.
• Going back and forth between their “city home” and their lake house.
• Playing golf.
• Sailing full time from Maine to Florida.
• Working part time at Home Depot for fun.
• Crisscrossing the country in their RV.
They are financially secure – even “rich” by their own definition of that word — and they sleep well at night. I also call this group the “happiest retirees on the block.”
Here are the three things these folks have in common:
1. Income: They have a decent amount of “guaranteed income” from Social Security and/or a pension. Their pensions aren’t always large, but they cover many of life’s necessities: utilities, food, insurance, etc. Pensions are gravy –- and anyone lucky enough to have one has a nice head start in retirement.
2. No mortgage: Their primary home is paid off, so the biggest monthly bill in life is off the table. This takes a tremendous amount of pressure off their retirement budgets and dramatically increases their discretionary income.
3. Savings, in the form of what I call “a million-dollar multiple”: This doesn’t mean they always have a full million dollars or more. It could be a half-million, three-quarters of a million, 1 million, 2 million and certainly more. But it means they have saved at least $500,000, held in liquid assets. This is money they can easily access, or use to generate an income stream. These dollars are typically held in both traditional and Roth 401(k) and IRA accounts, as well as brokerage, checking or savings accounts.
Once we get to retirement, we have to replace our paycheck income using money from savings. The “$1,000-per-month rule” says that every $240,000 saved should provide you with $1,000 a month for life, assuming you continue to earn dividend and interest on that money in your retirement years. (A look at income investing.)
Based on this rule of thumb, a $500,000 nest egg will generate about $2,000 a month in income. Add that to $4,000 a month in combined Social Security benefits for you and your spouse, and you have $6,000 in monthly income. If you’ve paid off the house, you’re on your way to being the happiest retiree on your block.
In the coming months I’ll share more secrets of the happiest retirees — to help you join their ranks. But if you’re taking a different route to eliminate financial stress in your retirement, please share in our comments section below so other readers can weigh the differences.
– Wes Moss, for AJC Atlanta Bargain Hunter blog