On a recent episode of my radio show, Money Matters, Chuck from Roswell called our listener line. He had just finished breakfast with his wife, and he was phoning in from the road. “Wes, I’m two years away from retirement. I’m driving a BMW 528i, and my wife is sitting next to me, saying, ‘You need to get rid of this car.’”

He was laughing. You could hear his wife in the background, nudging him.

“Let’s say I do want to be the happiest retiree,” Chuck said. “What kind of car should I buy? My wife wants me to get a nice Toyota. In my heart, I know she’s probably right. But what kind of cars do the happy people drive?”

“I’m so glad you called.”

I had plenty of advice for Chuck—a whole list of the financial laws of happiness—the things that made retirees either happy or unhappy.

“Do you really want to be happy, Chuck?” I asked. “Then trade the BMW in for a Lexus. If you want kids, have three of them. And you need to take at least two vacations this year: Learn how to enjoy your money, or you’re headed for the unhappy camp.”

You can’t control the economy, and you can’t always avoid health scares or changes in circumstance. But there are things you can control, from small to big: everything from the kind of car you drive to the amount of money you put into savings each month. Why not start now?

In this chapter, we’ll look at the financial choices and behaviors that lead to unhappiness. Most unhappy retirees don’t even know they’re headed for disaster; they have no idea how small, seemingly innocuous choices can add up to big financial ruin. Lucky for Chuck, he was able to change course before it was too late. His first mistake?

That sleek and shiny 528i.

Ditch the BMW and Stick to the Asian Brands

If you are retired and drive a BMW, chances are you are not happy. My survey results found that BMWs are the top luxury car in unhappy retirees’ garages across America. My guess? The Chucks of the world are still competing. They buy the “Ultimate Driving Machine” because they’re looking for a distraction—a high-end status symbol to make them feel better about themselves. But in purchasing such a car, they have opted, either knowingly or unknowingly, to add an additional financial burden to their lives.

It isn’t that driving a luxury car leads to unhappiness. There are plenty of non-BMW luxury cars listed for the happy group. Their preferred luxury brands are Lexus and Buick; they tend to prefer Asian luxury brands by a three-to-one ratio. Happy retirees are looking for two things in the cars they drive: comfort and cushion. Anything else is just a well-polished money sump.

We did a five-year average cost comparison between Lexus and BMW, and the gap was significant: over five years, the average cost of owning a Lexus is 16 percent cheaper than owning a BMW. Lexus is hardly considered the performance luxury brand, but retirees in the happy group don’t seem all that interested in speed and handling when it comes to luxury automobiles.

I’m not saying owning a Lexus will automatically make you happy, just like owning a BMW won’t automatically make you unhappy. All I’m saying is, after the top four makes of cars—GM, Ford, Honda, and Toyota—these are the cars that happy retirees drive. I’m guessing that’s no coincidence.

The Happy Cars

    • Lexus

    • Nissan

    • Hyundai

    • Subaru

    • Buick

The Happy Luxury Cars

    • Lexus

    • Buick

    • Lincoln

    • Mercedes

If you want to know what the unhappy retirees are driving (so you can avoid their fate), you should familiarize yourself with the Unhappy Cars: Chrysler, Dodge, Kia, Mercury, and of course, BMW.

You Don’t Need a Second Career as a Stock Trader

I can’t tell you how many unhappy retirees I’ve met who decide to “play the market.” Now that they’re no longer working, they have more time on their hands than ever before, so they think they’ll become investment experts and active stock traders overnight.

Big mistake.

I have a client who is a semiretired radiologist. We’ll call him Doctor Ray Gamma. Once Dr. Gamma saw the retirement light at the end of the tunnel, he began to scale back at the hospital. He went from working 80-hour weeks and 2 a.m. shifts to having more and more free time. He started burning the midnight oil poring over Barron’s and Bloomberg instead.

Don’t get me wrong—I love Barron’s—but it can be dangerous to read without a solid context in financial planning. Dr. Gamma lacks essential financial context, for obvious reasons. He’s not a financial planner; he’s a semiretired doctor. He’s constantly trying to redo and upgrade a plan that was put in place for him a year ago because he read about a hot new stock online. “Energy! Why don’t I have more energy? Energy is the it buy!” “Biotechs! This biotech stock has a 14 percent yield—why don’t we load up on this?”

What Dr. Gamma doesn’t know is that last week the “it” buy was commodities, and the week before that it was semiconductors. There is always something “better” that you missed, something else you “could have” done—and 10 days after that it will be something else.

Is that how you want to live your life day to day? If so, the gods of unhappy retirement applaud you. Happy retirees know how to avoid the coulda-shoulda-woulda. Some are able to do this on their own, while others find an expert or advisor they can trust who will do this for them.

Dr. Gamma is hardworking and driven, but he’s no expert in financial matters, just like I’m no expert in radiology. I would never tell Dr. Gamma how to perform his radiologist duties because it’s not my field. So then why does he think he knows what’s best for his own portfolio? I see it all the time, especially with retirees who were masters in their respective fields and assume they’ll be equally gifted at managing their own money. They’re smart people, but they’re out of their depth. Unless you had a past life as a financial advisor, I’m betting the same applies to you.

If you’re constantly tweaking your algorithms, frantically receiving Google alerts about the highest dividend-paying stocks, or making major investment choices because you read an obscure article in the Wall Street Journal, chances are you’re going to end up disappointed. I encourage you to develop your own investment game plan that you can stick to or seek the counsel of a fee-only investment advisor that will help you do so.

Give Your Money a Purpose

For many unhappy retirees, the only purpose of having money in retirement is to have money in retirement. Happy retirees, on the other hand, know their money is merely the means for living a happy life, not the end goal.

I am constantly surprised and delighted by the many ways happy retirees define the purpose of their money. There are some who want to see the world and others who want to stay right here at home, getting more involved in their communities. There are those with a heart for service, people who want to earmark money for their favorite charities and philanthropies, and others who get excited about sending their grandkids off to college. The kind of legacy you leave is entirely up to you—but here are some possible ideas to get you excited.

    • Get active in a local charity that rings true to your heart. You can get involved in a variety of ways: raising awareness, fund-raising, recruiting people to the charity’s events, serving on the board or on the committee for a program, or just rolling up your sleeves donating your time and energy. It’s all good.

    • Open your own charitable gifting account, also known as a donor-advised fund. You don’t need millions of dollars to do this. Fidelity has a program called the Fidelity Charitable: you can start with an account for as little as $5,000. You choose your investment options, and each year, Fidelity will help you gift your desired amount to the nonprofit organizations you care about most. It’s tax-deductible, and the company has even created a smartphone app that lets you contribute with the swipe of a finger. How easy is that? Head to www.fidelitycharitable.org for more info.

    • Explore crowdfunding organizations. This is becoming a popular way for nonprofits and local community-based projects to find funding. In 2013, Atlanta-based Uruut proposed a plan to build a brand-new park and amphitheater for children. Once word got out, hundreds of small donations poured in over a matter of weeks. Ultimately, its crowdfunding website took in over $100,000 and they were able to build the park. Research crowdfunding opportunities in your community, find a project you believe in, and pitch in.

Don’t Move and Don’t Renovate

These are two common traps for unhappy retirees. It makes sense, if you think about it: finally you have money and spare time on your hands. “It’s about time,” you tell your spouse. “Now we can finally do those home renovations we’ve been talking about for years!”

I advise you not to take this path. Consider Ron and Marie Carlyle, both 65 years old, a nice enough couple looking forward to a pleasant, peaceful retirement. But the Carlyles made a couple of critical mistakes, landing them squarely in the unhappy camp. They wanted to start their retirement off with a bang, so they sold their house and moved into a nice new place. Mistake #1: Never make a big move at the beginning of retirement. Sure, they had a nice new place, but they also had a nice new mortgage.

So there they were, in a new house with a lot of time on their hands. But guess what? The floor wasn’t right for Marie. None of her old furniture worked at the new place. Consequently, Ron and Marie have spent the last two years adding a new floor, redoing the interior decorating, and buying new curtains, new furniture, and a brand-new kitchen. Of course, if you’re going to redo the kitchen, you have to redo the bathroom, and if you redo the bathroom, you might as well redo the closet. See where I’m going with this? Mistake #2: Now is not the time for costly renovations. Each one engenders one more.

The Carlyles now have a massive financial outlay. They learned the hard way that home improvement is a slippery slope: it quickly starts to feel like a retiree’s full-time job. Ron and Marie will either be forced to take on new debt—Mistake #3—or eat into a significant chunk of the very nest egg that was supposed to last in perpetuity. They spent all those years building a nest egg that they now have to crack wide open to make a home improvement omelet—an omelet that is going to taste like broken dreams.

If you get the itch to move or renovate, try following these two simple rules instead:

    • If you know you want to do some home improvements, the better strategy is to take care of it before you stop working. Even if you save nothing in the last year or two of your career, that’s still far better than using $30,000 of your savings (or more) for a new kitchen and $20,000 of your nest egg for new hardwood floors.

    • If you’d like to move, try to take care of that before retirement as well. Get settled during the last of your working years, rather than embarking on that journey while your retirement is embarking on you.

Make Big-Ticket Purchases Before You Retire

Unhappy retirees are prone to making big purchases, and worse, making them at precisely the wrong times. Happy retirees have a much healthier relationship to spending. It’s not that they don’t spend money. It’s that they know when to do it: when they’re still drawing a paycheck.

One of the advantages of retirement is being able to control both your cash flow and your taxes. Let’s say when you’re working, you’re making $100,000 to $200,000 per year, which puts you in a really high tax bracket. As you move into retirement and begin to live on $60,000 to $70,000 per year, your tax bracket plummets accordingly, meaning you get to keep more of every dollar you make.

But if you take money out of your IRA for big-ticket purchases, you’re raising your overall level of taxable income—and digging yourself deeper into the hole.

Take Lisa Hudson. Until very recently, Lisa was a happy retiree, but lately she’s been hankering for a new boat to take out on the lake. She originally thought it was going to cost $10,000, but the latest estimate was closer to $20,000.

She said to me, “Wes, how much do I need to take out of my IRA in order to net $20,000?”

The answer is $25,000. Lisa has to withhold, on average, 15 percent for her federal taxes and 5 percent for state taxes (your state taxes may differ). So, that 20 percent gets taken off the top. Again, money drawn from an IRA counts as income, so Lisa will be penalized for using money she’s saved. If Lisa just had to have a boat to cruise into retirement, she should have bought it while she was still working.

The same rule applies if you’re thinking of buying:

    • A new car (not a BMW)

    • A new central air system

    • A new roof

    • A new “toy” (boat, RV, Jet Ski, Harley, etc.)

    • Any other large, one-time purchase

I’m not saying don’t spend money on this stuff. I’m saying do it while you’re still drawing a paycheck. You’ll be happy you did.

Plan and Budget for Your Retirement

My survey results were clear about this: 44 percent of the unhappy group reported that they were “Not Satisfied” with the amount of retirement planning they had done, compared to only 3 percent of the happy group (Illustrations 2.1 and 2.2).

Almost all happy retirees have done their homework: they’re enjoying their retirement because they planned to enjoy it. They did adequate legwork and preparation to ensure their reality would match their expectations. Unhappy retirees, on the other hand, just don’t take the time. Here’s a scary statistic: Less than half of Americans plan for retirement at all. That’s right: Only 46 percent of workers have even tried to calculate what they need to save for retirement.¹ Don’t let that be you!

Happy retirees are typically better budgeters than unhappy ones. They spend more time with their financial planners. They are more comfortable with the level of planning they’ve done. My survey shows that 79 percent of the happy group is comfortable with the amount of time they’ve spent planning for their future. Conversely, 87 percent of the unhappy group feels they haven’t done enough to plan.

I recently met with a lovely woman named Becky Fallon. She had taken a really expensive riverboat cruise through Europe—from Germany to Amsterdam. It cost her $20,000. She hated herself for it because she knew it was poor planning for the future.

Unhappy retirees rob the budget now and pay for it later. Happy retirees balance the budget now and it pays off later.

Make Sure Your Rich Ratio Is Over 1

This is something I created for the many individuals and families I’ve worked with over the years, to give them an easy way to understand their money. The Rich Ratio is simply the amount of money you have in relation to the amount of money you need. If you have the ability to generate $10,000 a month and you only need $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 poor.

Happy retirees honor the rich ratio. Any ratio over 1 is fantastic. Any ratio below that, well—let’s just say you 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 should produce, and divide it by what you expect to spend each month to live the retirement you want:

Example: Jennie has a passion for travel and will need $10,000 per month to support her wanderlust lifestyle in retirement. She has a small pension from her days in the advertising business ($1,000/month) plus social security at age 62 of $1,800/month. She has saved $1,000,000 in her 401(k).

    Jennie’s Have = $1,000 (pension) + $1,800 (social security) + $4,100 [5% of her 401(k) on a monthly basis] = $6,900

    Jennie’s Need = $10,000

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

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

Now let’s take a look at Christopher. He needs just $3,500 to live the good life, in part because his house is paid off. Chris also has a small pension ($1,200/month). He will receive social security of $1,800 and has $400,000 in his 401(k).

    Christopher’s “Have” part of the equation:

    Christopher’s Have = $1,200 (pension) + $1,800 (social security) + $1,650 [5% of his 401(k) on a monthly basis] = $4,650

    Christopher’s Need = $3,500

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

Chris’s Have is a lot less than Jennie’s—but so is his Need, resulting in a 1.32 Rich Ratio, which is beautiful. Even though Christopher has a smaller net worth (and less in retirement savings), he’s much richer than Jennie is. Chris is headed for happiness; unfortunately, Jennie is not.

Check Your Pessimism at the Door

When people talk about today’s retirement landscape, the message is one of gloom and doom. No one believes he or she will actually be able to retire early. Remember Nick and Katie Benjamin from Chapter 1? Even they had a hard time believing it—and they’ve been doing everything right.

It goes without saying that we live in an uncertain world. Between 2000 and 2013, the S&P 500 dropped nearly 50 percent on two separate occasions; at one point the NASDAQ dropped 80 percent! In our lifetime we have witnessed real estate plummet by a third in value. Today’s 30- and 40-year-olds have either grown up with parents who were burned by the stock market or they’ve been burned themselves. Many people continue to suffer, still reeling from the financial crisis, the dot-com bubble, and the housing crash.

Until the day she passed away at 107 years old, my Great Aunt Willy V. Ray wouldn’t walk past a penny without picking it up. She’d only shop when there was a senior citizen discount. She had plenty of money, but her Depression mentality superseded it. She was a Great Depression baby. What I see today are Great Recession babies: men and women who think about retirement with a great deal of pessimism and fear.

Of course people are scared! There’s an explosion in the Middle East every other weekend, tsunamis keep hitting nuclear reactors, and the recent financial crisis drags on and on.

To make matters worse, these things are happening in real time, on 24-hour news networks. Chemical plant fires, school shootings, marathon bombings, murder trials—we watch it all on YouTube or see it in our Facebook feeds. There’s no three-day delay to get news from overseas: it’s in our face, practically all the time.

No wonder so many people’s attitude is: “I don’t know if I’ll ever be able to retire.”

I say: throw out the pessimism! It’s not doing you any favors. Can you really retire sooner than you think? Yes. I’ve seen it happen for hundreds of people. Fear is paralysis: let it dominate you, and nothing seems possible. But if you start taking proactive and preemptive measures today and focus on happiness in retirement, you’ll be amazed at what you can do.