I think most of us who have joined or lurk on this board have heard of a 2010 study by psychologist Daniel Kahneman and economist Angus Deaton which found that after securing an income of $75,000 per year, additional income has no measureable effect on day-to-day contentment. Last fall (2014), reviewer Doug Short took this national number and adjusted it for cost of living by state:
Happiness Revisited: A Household Income of $75K?
I recently came across a February 2014 article that drew similar conclusions with respect to wealth: “More wealth does lead to greater happiness in retirement, but the relationship actually starts to decline at high levels of wealth (about $2.3 million).” The entire article can be found here:
Finke: What Makes a Successful Retirement?
Using the cost of living index supplied in Doug Short’s article, it is possible to create a value for wealth that is adjusted for cost of living by state.
Working with nominal numbers has its benefits and detriments, but when creating a wealth-to-income ratio using the national numbers (2,300,000 / 75,000) we get 30.66. This provides support for the idea often expressed on this board, that crossing the line of financial independence is where contentment is maximized. It may also suggest why some in the financial media have begun suggesting 2 to 2.5 million as the "retirement number" of choice.
Enjoy your day!