Here are some notes made by Jeremy Kisner who attended a presentation given by Michael Finke, a retirement researcher at American College of Financial Services. Finke holds a PhD in consumer sciences from Ohio State as well as a PhD in finance from University of Missouri. But he has discovered that wealth and income play a only limited role in determining happiness in retirement.
Jeremy Kisner, who has graced us before with his wisdom, is director of financial planning at Surevest Private Wealth in Phoenix, AZ. He writes a blog called Clear and Concise Financial Advice and knows very well how other factors, besides money, bring us happiness. I'll let him explain . . .
The single most important factor influencing happiness and well-being in retirement is . . .
* Creating and maintaining friendships.
* The most important relationship, by far, for married couples is the one with their spouse. It is hard to be happy in retirement if you are not happy in your marriage.
* Don't kid yourself, maintaining friendships takes some time and effort.
* Women are better than men at maintaining friendships. Many men rely too much on their wives for social interaction, which can sometimes put a strain on the marriage.
* We romanticize what we will do in retirement, dreaming of the golf course, the beach, the exotic travel destinations. In reality the #1 activity in retirement is watching TV.
* Relaxing all the time does not make us happy. It is important to find activities that interest us.
* Perhaps the best use of financial resources, in terms of happiness, is investing in hobbies that lead to social interaction -- anything from golf to biking, collecting classic cars to joining a knitting circle.
Financial security is correlated with retirement happiness -- so what should we spend our money on?
* On average life satisfaction does rise with wealth, up until about $4 million in assets. Wealth above that level does not increase happiness, and in some cases ultra-high-net-worth folks are less happy.
* Spending more on social activities makes people happier -- eating out with friends, traveling, entertaining. These expenditures, which may be considered "frivolous" or "optional" are actually more important for making people happier than any other type of spending.
* The typical retiree spends about the same amount of money in their first year of retirement as they did in their final year working. However, they do not need the same amount of gross income, since they do not pay payroll taxes, do not need to add to savings. Workers with over $100K in earnings typically need to replace about 60% to 70% of pre-retirement gross income.
* Real spending (adjusted for inflation) tends to decline as the years go by. Spending falls faster among wealthier retirees.
* If people have pensions, they spend more on so-called frivolous things and are happier. Surveys show that an additional $10,000 in annual pension income brings as much happiness as an additional $643K in investable assets.
* Many retirees who do not have a pension feel uncomfortable spending down their assets, even if they have a lot of savings. In one survey 84% of participants indicated that they were uncomfortable with the idea of using up even a portion of their nest egg to supplement their income.
Do children make us happier?
* Retirees who have children are slightly happier, on average, than those who do not. However, if the children live within 10 miles, this tends to reduce happiness -- due largely to unrealistic expectations of what the relationship should be. Some of the pitfalls: Children don't take their parents' advice; retirees become a cheap babysitting service; spouses want different amounts of time with the kids and grandkids.
What type of housing makes retirees the happiest?
* Many new retirees figure they will take a few years to decide where and how they want to live -- whether they want to downsize, for example, or relocate. However, keeping options open for too long makes people less happy. Once people make a choice and move forward with decisions, they are happier.
* Homeowners are happier than renters, up to their early 80s. After that, people are happier when they can have an active social life without the burden of ownership, and without having to travel -- which can often mean going to an independent-living facility or continuing-care community.
How does health impact life satisfaction?
* It is no surprise that health is important for enjoying life. Poor health reduces life satisfaction, and in general the worse your health the more unhappy you become. However, excellent health alone does not make people happy.
* The gap in longevity between men and women has narrowed. In 1980 the average 65-year-old woman could expect to outlive her husband by about 4 years. Now the longevity gap has narrowed to approximately 2 1/2 years. Men who used to abuse their bodies with excess drinking, daily smoking, poor diet, are now making healthier lifestyle choices.
* A healthy, upper-middle-income 65-year-old couple has a 43% chance of at least one spouse living to age 95.
* Longevity does increase with income. For a host of reasons related to wealth, the richest 1% of men live 14.6 years longer than the poorest 1% of men. For women the gap is less: 10.1 years.
* The wealth and longevity gap is growing. Over the past 15 years, life expectancy has increased by 2.34 years for men and 2.91 years for women in the top 5% income bracket. But life expectancy has increased by just a few months for men, and less than one month for women in the bottom 5% of the income tables.