What Is Your Rich Ratio?

Happy Retirees Have A Rich Ratio Over 1. What’s Yours?

For many years I’ve wondered exactly what makes retirees happy or unhappy.  When I conducted my study to get some real answers, there were a number of results that didn’t surprise me. But, there were a few that I found a little more interesting. For example, my survey results found that BMWs are the top luxury car in unhappy retirees’ garages. But BMW wasn’t the only car that got a bad review. On the other hand, it seems that those retirees who drive a Toyota, Nissan or Hyundai are pretty happy. While this is not to say that every retiree that drives a BMW is unhappy or that every retiree that drive a Lexus is happy, the data definitely makes me think about what kind of car is my own garage right now.

Did you know that retirees who try their hand as a stock trader as their second career are generally unhappy?  Playing the market is not for the faint-hearted and adds a lot of undue stress to retirees’ lives.  Even if you watch CNN (Crisis News Network? Ha ha) every day and think you know what’s going on, remember that it’s best to leave stock picking to the real experts. Unhappy retirees also think that the only purpose of having money in retirement is to have money in retirement. This is counter to how happy retirees look at money, who know that it is merely the means for living a happy life, not the end goal. Your money needs to have a purpose! Of all of the traits of unhappy retirees, the one that I believe carries a lot of weight and is easy to understand is the “Rich Ratio”.    

What Is The Rich Ratio?

The Rich Ratio is a ratio that has been created for individuals and families to give them an easy way to understand their money. Simply put, the Rich Ratio is the amount of money you have in relation to the amount of money you need. For example, if you have the ability generate $10,000 a month and you need only $5,000, you’re rich!  By that same logic, if you have the ability to generate $1 billion a month, but you need $2 billion, you’re not rich. Happy retirees stick to the rich ratio. Any ratio over 1 is fantastic. Any ratio below that indicates that you probably have some work to do.

Here’s how to find your Rich Ratio: Take the monthly income you will have coming in (social security + Pension + any other income streams), including what your nest egg (cash) should produce, and divide it by what you expect to spend each month to live the retirement you want: Have/Need = Rich Ratio. Let’s look at a couple of examples and see how someone with less money saved can actually have a higher Rich Ratio and is probably living happier.

Example 1:

Maryna has a passion for travel. She loves to travel so much that she’ll need $10,000 per month to support this kind of lifestyle in retirement. Maryna has small Pension from her days in the event management business ($1,000/month) plus social security at age 62 of $1,800/month. She has saved $1,000,000 in her Private Pension. 

Maryna’s Have = $1,000 (Pension) + $1,800 (social security) + $4,100 (5% of her Private Pension on a monthly basis) = $6,900

Maryna’s Need:  $10,000

Maryna’s Rich Ratio = $6,900/$10,000 = 0.69

Considering her Rich Ratio is below 1, I would not consider Maryna “rich” at all.

Example 2:

Now let’s take a look at Steven. He needs just $3,500 to live the good life, in part because his house is paid off. Steven also has a small Pension ($1,200/month). He will receive social security of $1,800 and has $400,000 in his Private Pension.

Steven’s Have = $1,200 (Pension) + $1,800 (social security) + $1,650 (5% of his Private Pension on a monthly basis) = $4,650

Steven’s Need = $3,500

Steven’s Rich Ratio = $4,650/$3,500= 1.32

If you haven’t already, take some time to figure out your Rich Ratio. You can always make tweaks and adjustments to be sure that your Rich Ratio is above 1 so you’re setting yourself up to be a happy retiree. Obviously the best way to do this is to hire an Independent Financial Adviser – the fee will be money well spent. After all, everyone needs an expert when it comes to their future finances, in the same way you need an expert doctor to treat your medical conditions…………..

While Steven’s’ Have is a lot less than Maryna’s, so is his Need. Steven, with significantly less money saved that Maryna, has a much better Rich Ratio at 1.32, compared to Maryna’s at 0.69. So even though Steven has a smaller net worth (and less in retirement savings), he’s actually much richer than Maryna is. Based on these numbers, Steven’s got happiness in his future, and unfortunately Maryna does not. 

Need help with HAPPINESS in your retirement planning? Contact me now……………..go on!

GREG POGONOWSKI

www.yourmoney-matters.net

email: greg@yourmoney-matters.com