Stretching Your Dollar: How to save for retirement

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COLUMBIA - Few misunderstand the importance money will make when it comes to retirement. And you may have even tried to figure out the specifics of how much you'll need to be covered when you quit working.

But have you calculated your happiness? In this Stretching Your Dollar, we looked at some specific indicators you need to factor in when coming up with your personal retirement price tag.

What you look forward to in retirement is a big part of how much you're going to need stashed away.

Famous penny-pinching advice columnist Clark Howard did a study across 46 states to find happy vs. unhappy retirees and figure out what made them that way. It basically came down to three mistakes.

1. Unhappy retirees can't define the purpose of their money.

  • A lot of people moving into the retirement years are under the (false) impression the money they've saved alone is going to make them happy. It's a common misconception. The happiest retirees understand what purpose they have for what they've saved. Whether it's travel, pursue a hobby or donate to a charity.


2. Happy retirees have a "rich ratio" greater than one.

  • This one is a little harder to wrap your brain around. Your rich ratio is the amount of money you have saved in relation to the amount of money you need in retirement each month.

Here's an example:

  • Brooke wants to travel in retirement, so she needs $8,000 a month. She has a $1,000 per month pension from her time working, plus social security of $1,800 per month at age 62. She also saved a million dollars in her 401(k) which breaks down to about $4,100 each month. This means she has just less than $7,000 a month in retirement. Brooke's rich ratio is .86. Brooke's rich ratio is below one, so we can't consider her to be rich and she unfortunately falls into the likely unhappy retiree group.
  • Then there's Steve. Steve needs just $4,000 a month to retire comfortably. He already paid off his house. Steve has a pension of $1,300 per month. He gets $1,800 from Social Security every month and he has $400,000 in his 401(k). This divides out to a little more than $1,600 each month of retirement. Steve will have about $4,700 each month.
  • Steve's rich ratio is 1.18. Despite the fact Steve has less money in his retirement account and a smaller net worth than Brooke, Steve is actually set up to be a much happier retiree than Brooke based on their rich ratios.


The final factor that seems to define happy vs. unhappy retirement is housing debt.

One common trait of happy retirees is they have either paid off their mortgage or they're within five years of having it paid off when they retire.

Conversely, a large percentage of unhappy retirees have 10 or more years until their house will be paid off.

Research also found senior citizens are taking on new debt quicker than any other group.

Middle-class Americans, 65 and older, increased their debt by more than 25%.

During the same period, middle-class Americans age 35 to 64 showed virtually no increase in debt.