Welcome back to my series on the great retirement book The Retire Sooner Method: The 5 Secrets Behind America’s Happiest (and Unhappiest) Retirees
So far we’ve had the following posts in this series:
If you missed either of those posts, you’re going to want to go back and read them before you read this one, since today’s post is a continuation of the others.
And to make things extra fun, I’ll be giving away a copy of the book at the end of each post in this series, so be sure to stay tuned and read to the end if you want a chance to win a copy.
And there’s more news as well…Wes Moss has agreed to do an interview with me about this book.
We’ll be talking in a few weeks, which gives ESI Money readers a chance to submit questions ahead of time. I’ll review the questions left in the comments on my posts and include some of the best ones in my interview with him.
So if there’s something you’d like to ask Wes about the book, retirement, or any of the ideas he discusses, leave your question in the comments below.
Today we’re going to learn the details on the first of the five secrets. This one is about how to get in the Money Green Zone.
Four Pillars
From what we learned in the overview, Secret #1 is to have at least “$1 million in liquid investable assets.” But there’s actually more to it than that.
There are actually “four core components of Secret #1 of the Retire Sooner Method that will help get you to the Green.”
They are:
- $1 million or more in liquid investable assets (your nest egg)
- Multiple income sources that add up to $100,000 or more
- Mortgage payoff within sight (nine years or fewer)
- The 4+ percent rule of thumb (the biggest antidote to running out of money)
We’ll get into my comments on these in a minute, but first, let’s get to why these are one of the secrets:
These four components are the elixirs for the fear of running out of money. And here’s another telling statistic: Our data shows that unhappy retirees are twice as likely to have this worry than happy retirees.
So basically, if you worry about having enough in retirement, you’re probably not as happy. That makes sense. No one wants to trade work stress for money stress.
And the four items above help people avoid worrying about running out of money. That’s why if you have them, you’re more likely to be happy.
This is an important point because people sometimes talk about retirement as if the only issue is whether or not you can quit working. That’s not quite right.
The goal is not simply to stop working. The goal is to stop working and have confidence that your money will last, your spending is reasonable, your home situation is secure, and your income sources can support your life.
Retiring without that confidence is not really freedom. It may simply be exchanging one kind of stress for another.
Instead of worrying about your boss, your job, your commute, your meetings, your deadlines, your employees, your customers, or whatever else work brings, you start worrying about your portfolio, inflation, healthcare, Social Security, taxes, and whether you’ll be living on cat food in your 80s.
That’s not the dream.
So I understand why Moss puts money first. Retirement happiness is not all about money, but it’s hard to be happy in retirement if you’re constantly worried about money.
Now let’s get into each of them with my thoughts:
- The $1 million or more in investable assets is the one we’ve seen before. I’m wondering how the “or more” works out. Is it the more you have, the better you feel, or does the happiness boost drop off after a certain level?
- Point two has a couple parts. The first is “multiple income sources.” If you have one income source and it’s $100k, is that a problem? The second part is “$100,000 or more.” I think most people would be happy if they were earning $100k or more in retirement, especially if their house was paid off.
- Point three has a range. As long as you’re within nine years of paying off your mortgage, you’re good. I wonder where nine years came from. Why not seven or thirteen or some other number? Nine seems so specific that it must have come from the data somehow.
- And, of course, there’s the famed 4% rule. It’s pretty standard. And if you have $1 million in investable assets, it alone counts for at least $40k a year.
Personally we were well beyond these when I retired 10 years ago:
- Our net worth then was $3.3 million with net investable of around $2.8 million.
- Our income was initially lower, but we had $60k a year from our rental units. Then when ESI Money, then Rockstar Finance, then MMM took off, we were way over $100k.
- We paid off our mortgage in 1998 or so. Other than a six-month bridge loan when we moved to Colorado and hadn’t sold our Oklahoma house yet, we haven’t had a mortgage. FYI, when we paid off our mortgage, the rate was something like 9%.
- We haven’t had to take any distributions from our assets yet, as we’ve always made more than we spent. That has allowed our assets to grow quite a bit since I retired.
So yeah, I can see where he’s coming from on this one.
In fact, I would say these four items are a pretty solid summary of what financial independence feels like in retirement. You have assets. You have income. You have a low fixed-cost lifestyle because the mortgage is gone or almost gone. And you have a reasonable withdrawal strategy.
This combination goes a long way towards being happy!
Investable Assets
Next they begin to discuss each of these four in a bit more detail, starting with the $1 million as follows:
Red Zone: Americans with less than $100,000 in investable assets report happiness levels that fall dramatically below the [happiness] baseline. This makes intuitive sense — when you’re worried about basic financial security, it’s difficult to feel content or optimistic about the future. This is the financial equivalent of checking your bank balance before ordering an appetizer and realizing you can’t afford the breadbasket.
Yellow Zone ($100,000-$999,999 in Assets): Once Americans cross into six-figure territory, happiness levels stabilize just above the baseline. Whether you have $100,000 or $500,000 or $800,000, the happiness levels remain relatively similar within this range. You’ve achieved basic security, but you haven’t yet reached the comfort zone. You’ve graduated to the “I can order a steak without panic” level, but you’re still nervous about adding the turtle cheesecake.
Green Zone ($1 Million and Above): Here’s where the magic happens. Once Americans crest the $1 million mark in investable assets, we see a significant jump in overall happiness. Happiness levels continue to rise once you reach the $3+ million category, before leveling off. This is “order whatever you want” territory. Finally, you can say, “I’ll have the surf and turf” without breaking into a cold sweat.
Some thoughts here:
- I can see why people in the Red Zone aren’t as happy. They are living with a very tight financial constraint. And especially over the past several years, where inflation has been brutal, they are in a rough place. When you have less than $100k in investable assets, almost any surprise can become a big deal. A major car repair, a medical bill, a new roof, helping a family member, a market downturn, or several years of higher grocery prices can feel threatening. That’s not a good emotional foundation for retirement.
- This is why the “save” part of ESI is so important. It’s not only about becoming rich someday. It’s about building margin. The more margin you have, the more life can happen without blowing everything up.
- My dad is in the Yellow Zone, and he’s doing pretty well. Of course, he lives in a low-cost-of-living area in rural Iowa, so his finances go pretty far there. If he lived in New York City, he’d have a much tougher time. That’s why these broad categories are useful, but they are not the whole story. Location matters. Spending matters. Whether or not your house is paid off matters. Health matters. Pension income matters. Social Security matters. Family obligations matter. I could go on, but you get the idea.
- A person with $600k in rural Iowa, a paid-off house, Social Security, and low expenses may be much more secure than someone with $1.2 million in a high-cost area, a mortgage, high taxes, and a lifestyle that burns through money. So I understand the Green/Yellow/Red framework, but I’d still want to apply it through the lens of each person’s actual situation.
- The Green Zone is where the millionaires I hang out with reside, though I can tell you that many of them would not be comfortable with only $1 million. And many think $3 million is too low these days. Personally, I think $5 million is where you get past the point of even thinking about needing more, but I also have no mortgage and a pretty low level of spending if you take out giving and taxes.
It’s interesting that happiness “levels off” after $3 million. We’ll need to dig into that.
Because this is an important financial concept in retirement: there is a point where additional money stops meaning much.
At first, every extra dollar matters. It provides security, flexibility, and relief.
Going from $0 to $100k is huge.
Going from $100k to $500k is huge.
Going from $500k to $1 million is huge. (The first million is the hardest, after all.)
Going from $1 million to $3 million is also very meaningful for many people.
But going from $5 million to $6 million? Or $8 million to $9 million?
For a lot of people, that’s not going to change much about their daily lives, especially if they already spend far less than they have.
Levels of Wealth
The book continues:
This isn’t just about money for money’s sake. What we’re really measuring is the psychological impact of financial security. When you’re confident you won’t run out of money, when you can handle unexpected expenses, when you can be generous with family and causes you care about — that’s when happiness levels seem to take flight.
So it’s a personal thing. Whenever you begin to feel secure financially personally, that’s where happiness starts to ramp up.
And once you’re way past a certain point, you don’t get more happiness with more money (on average).
And for most people, the numbers are $1 million to feel secure and $3 million to be “loaded.” Hahahaha.
All of these conclusions seem reasonable to me.
How about you? What is your initial amount to retire and what is your “I’m rich!” amount?
Your “I can retire” number is probably the number that allows you to cover your expenses safely and leave work.
Your “I’m rich” number is probably the number where you no longer think much about money at all.
For some people, those numbers are close together. For others, they are millions of dollars apart.
And for some people, no number ever seems to be enough. Which is a problem in and of itself.
Next the book gets into the leveling off of happiness at higher income levels:
More money does correlate with greater happiness but begins to wane at a certain point. I think of this as the money and happiness plateau effect. Once you hit the Green Zone, the data shows — and I’ve seen this play out in real life — you enter what I call “diminishing marginal returns” when it comes to happiness per new dollars. The happiness gains start to slow, meaning that each additional dollar past a certain point produces less new happiness than the one before it.
This threshold might be different for everyone. Since there’s no perfect or agreed-upon inflection point among economists and researchers, I think it’s fruitless to try to nail an exact number when the switch flips.
The plateau effect reinforces a concept we’ll return to throughout this book: the power of “enough.” In the early stages of wealth accumulation, there are dramatic jumps in happiness as financial security gets added. Moving through the Red Zone into the Yellow Zone creates measurable relief. Breaking into the Green Zone brings another significant boost. But once we reach a certain threshold — that point where we have enough to do the things we want to do and care for our families — we start seeing diminishing marginal returns per new dollar when it comes to happiness.
I am 100% tracking with him based on my personal experience.
When we retired, I knew we had enough to last through retirement. But since I kept earning, we didn’t need to pull from assets. Those assets kept growing and growing and are now approaching three times what they were when I retired.
At about $5 million, I stopped keeping close track and stopped getting (as) excited about the increases. (It still is neat to hit a new milestone but it’s alos sort of ho-hum.)
For the most part, the results these days are mostly just numbers on a computer screen.
That may sound strange to someone still working toward financial independence, but many financially independent people will understand what I mean.
In the early days, every milestone is exciting. But at some point, the numbers stop changing your life.
You still live in the same house. You still eat the same breakfast. You still drive the same car. You still go to the same gym. You still shop at the same stores. You still take similar trips. You still spend time with the same people.
Your daily life may not change at all. And if your daily life doesn’t change, then the extra money doesn’t add much happiness.
It adds margin, which is nice.
It adds options, which is nice.
It adds more opportunity to give, which is very nice.
But if you already have enough, more money is not the same as more life.
I also agree that this threshold is different for everyone. Some in the MMM forums have way more than I do and still don’t think they have enough to retire.
They are not necessarily wrong. Their expenses, goals, risk tolerance, family situations, and fears may be very different from mine.
But sometimes it’s also clear that the issue is not math. The issue is confidence. Or fear. Or identity. Or the inability to believe that the game has been won.
Moss continues:
When a retiree realizes they’re not going to outlive their nest egg, it significantly reduces financial stress and liberates them to explore more pathways to joy and fulfillment. But beyond that security threshold, the happiness gains level off.
Sometimes the best investment isn’t more money; it’s more time to enjoy the money you already have. Just saying yes can be powerful.
This is why I advocate for retiring as soon as you can once you have more than enough (or at least way more than enough). Otherwise you are trading time and happiness for money you don’t need. That’s not a good deal.
And this is where many high earners and strong savers struggle. The habits that make you wealthy can also make it hard to stop.
You get used to earning and you get used to saving. You get used to watching the numbers grow. You get used to being productive. You get used to saying no now so you can have more later.
Those habits are powerful. They help you build wealth. But at some point, you need to ask, “What was all this for?”
If the answer was freedom, then eventually you need to take the freedom.
If the answer was time, then eventually you need to use the time.
If the answer was a better life, then eventually you need to live the better life.
Otherwise, you may simply keep accumulating money until health, age, or circumstances make it harder to enjoy what you built. That would be a shame.
Well, that’s where we’re going to end today as this post is already long and we have a ton more to cover. Stay tuned as we’ll soon share the rest of this chapter.
For now, it’s time for another book giveaway…
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As I said above, I’m giving away a copy of The Retire Sooner Method on every post I do about the book. Here’s how to enter:
- Leave a comment below telling me what you liked best about this post, what you think you can use, or something you learned from it. Basically just share anything meaningful related to the content above (note: “please enter me to win” and similar comments will not be considered out of pure weakness! At least put a bit of effort into it!) This should be fun!
- Be sure to leave your email address when you leave the comment so I will know how to reach you if you win (the email address will not be visible to anyone other than me).
- The winners will be selected by me at random a few days after this post goes live. I’ll announce who wins in my own comment.
- I’ll email the winner, get their address, and send them a book from Amazon.
As with most giveaways, there are rules. Here they are.
Good luck!!!!
