Retirement Happiness Article

[YVRRocketSurgery]

I thought I'd pass along a retirement happiness article I found interesting.

Key takeaways if you don't want to read the article are:

• Retirement happiness does go up with the amount of savings accumulated but only to a point of around $3.5M USD of investable assets. Beyond that, happiness decreases likely due to the stress of managing that wealth.
• The wealthiest quintile of retirees only spend about 20% more the the poorest quintile of retirees.
• A solid marriage and good relations with the kids can be just as valuable from a happiness perspective as a big portfolio.
• Retirees who annuitize some of their retirement portfolio are generally happier because they psychologically have an easier time spending cash from an income stream versus spending their portfolio.

 

[daylatedollarshort]

Interesting article. Thanks for posting. We took our pensions as annuities, and the part in the article about annuities holds true for me. I do have an easier time spending the pension income than I do spending money from the investment portfolio.

 

[brucethebroker]

Good points about the annuity...rents work the same way and it does take the anxiety out of cash flow.

 

[Nemo2]

From the article:

The wealthiest 20 per cent of retirees tend to spend only about twice as much as the poorest 20 per cent of retirees

 

[audreyh1]

The study, which now spans more than 20,000 people, shows that retirees' happiness goes up in line with the amount they've accumulated, but only up to a point. After a household has $3.5-million (U.S.) in investable assets, happiness tends to decline with further wealth, probably because of the pressures associated with managing large amounts of money.

"Once you've saved up more money than you'll ever spend in retirement, you have to become a wealth manager as well as a retiree," Dr. Finke said. The added stress detracts from life satisfaction.

To be sure, most of us will never have to worry about the stresses of managing our personal millions. But nearly all of us can take comfort from another observation: The actual amount that people spend in retirement is only loosely related to how much money they have stowed away.

OK - I don't get this. Why would managing say $5M, $8M, or $10M be any more stressful than $3.5M? I just don't see the difference. I think this is someone's opinion (imagination).

In fact, as our retirement assets have grown to exceed what we need for income and possible emergencies, the stress of managing investments has dropped slightly. If we have another nasty bear, the absolute impact should not be as bad because the portfolio grew before the hit.

Money management is something that scales very easily - you can keep using the same techniques as the pile grows. And guess what - you have to become a "wealth manager" in retirement whether or not you have "way more than enough" as long as you have investments you want to make last.

I suspect the major stress lowering comes when all income needs are covered by guaranteed income streams (pension/annuity/social security) AND you have guaranteed affordable health care (retiree healthcare/Medicare with Medigap covered). Then managing any additional investments is not so critical. But this has nothing to do with the size of any additional investments.

Now if someone argued that lifestyle creep tended to make life more complex, and thus a bit more stressful, once folks' net worth exceeded some magic number, I would buy that argument. The solution is easy - be careful about your lifestyle creep - make sure the additional complexity is adding to your happiness, not subtracting from it. Lifestyle creep can definitely happen unconsciously (just like while working), so someone has to be aware to manage their lifestyle to reduce stress/increase happiness.

"OMG, we have to fly first class again?!?! I'm hating this!!!!"

 

[Mdlerth]

I thought I'd pass along a retirement happiness article I found interesting.

Key takeaways if you don't want to read the article are:

• Retirement happiness does go up with the amount of savings accumulated but only to a point of around $3.5M USD of investable assets. Beyond that, happiness decreases likely due to the stress of managing that wealth.
• The wealthiest quintile of retirees only spend about 20% more the the poorest quintile of retirees.
• A solid marriage and good relations with the kids can be just as valuable from a happiness perspective as a big portfolio.
• Retirees who annuitize some of their retirement portfolio are generally happier because they psychologically have an easier time spending cash from an income stream versus spending their portfolio.

Correction needed: I think the article says that the wealthiest quintile spends 2X more than the poorest, not 20% more.

 

[Nemo2]

Correction needed: I think the article says that the wealthiest quintile spends 2X more than the poorest, not 20% more.

As I noted in post #4

 

[2017ish]

OK - I don't get this. Why would managing say $5M, $8M, or $10M be any more stressful than $3.5M? I just don't see the difference. I think this is someone's opinion (imagination).

...

Agree. It is Finke, so he must have a basis for it, but I sure haven't gotten more stressed as our assets have grown. Quite the opposite. How hard is it to watch a total market index fund that is 3, 4, or 10x as big as it used to be?

I suspect if our portfolio were to be cut in half two years after retiring, it might be more stressful--but not if it were to double!

 

[Mdlerth]

Dear Nemo,

You are absolutely correct. I'm just piling on.

 

[Nemo2]

Dear Nemo,

You are absolutely correct. I'm just piling on.

 

[donheff]

OK - I don't get this. Why would managing say $5M, $8M, or $10M be any more stressful than $3.5M? I just don't see the difference. I think this is someone's opinion (imagination).

In fact, as our retirement assets have grown to exceed what we need for income and possible emergencies, the stress of managing investments has dropped slightly. If we have another nasty bear, the absolute impact should not be as bad because the portfolio grew before the hit.

Money management is something that scales very easily - you can keep using the same techniques as the pile grows. And guess what - you have to become a "wealth manager" in retirement whether or not you have "way more than enough" as long as you have investments you want to make last.

I suspect the major stress lowering comes when all income needs are covered by guaranteed income streams (pension/annuity/social security) AND you have guaranteed affordable health care (retiree healthcare/Medicare with Medigap covered). Then managing any additional investments is not so critical. But this has nothing to do with the size of any additional investments.

+ on all those points.

 

[audreyh1]

Agree. It is Finke, so he must have a basis for it, but I sure haven't gotten more stressed as our assets have grown. Quite the opposite. How hard is it to watch a total market index fund that is 3, 4, or 10x as big as it used to be?

I suspect if our portfolio were to be cut in half two years after retiring, it might be more stressful--but not if it were to double!

I appended my post to add an alternative theory of "lifestyle creep" which can increase complexity and thus stress. This phenomenon has little to do with retirement. And lifestyle creep can be managed, although an individual has to be aware to do it.

 

[scrabbler1]

Why does the article's author assume that all retirees are married and have kids? I have never been married and never wanted kids, and I claim that those two things have made me a very happy early retiree.

 

[2017ish]

I appended my post to add an alternative theory of "lifestyle creep" which can increase complexity and thus stress. This phenomenon has little to do with retirement. And lifestyle creep can be managed, although an individual has to be aware to do it.

Good appendix.

DW is looking forward to conducting a slow, strategic retreat against the onslaught of lifestyle creep beginning in August. (Must confess, she is not alone in this!). But yeah, if not controlled, could induce a lot of stress.

 

[2017ish]

Why does the article's author assume that all retirees are married and have kids? I have never been married and never wanted kids, and I claim that those two things have made me a very happy early retiree.

Good point. I barely noticed, except to wonder why we'd want to live near our kids when we can see them when we'd like anyway via video chat or airplane.

Thinking about it, this article is fairly typical of the genre in its overly general assumptions--perhaps a market niche exists for a bright, non-FIREd, single person/writer!

(We have different personal thoughts on marriage/kids--but that's what makes the world go round! )

 

[Amethyst]

Probably because most are, and do (especially the kids part - most people have them, like it or not) and it would make the article too long to put in separate bits about single people with no kids, single people with kids, etc.

I've seen articles, or at least blog posts, about being retired without kids or partners. So there are folks out there who care about those groups.

Why does the article's author assume that all retirees are married and have kids? .

 

[scrabbler1]

Probably because most are, and do (especially the kids part - most people have them, like it or not) and it would make the article too long to put in separate bits about single people with no kids, single people with kids, etc.

I've seen articles, or at least blog posts, about being retired without kids or partners. So there are folks out there who care about those groups.

I would be perfectly fine if the author had simply qualified his statement with something like, "....if you are married and/or if you have kids....." This at least acknowledges the fact that not everyone is married and not everyone has kids. It would not have lengthened the article by any significant amount.

 

[YVRRocketSurgery]

Ooops. Thanks for catching the wealthiest retirees spending double the poorest! Unable to edit the original post now.

 

[Amethyst]

I know - it's hard being in the minority on anything. Try finding financial advice when you are a couple who are way apart in ages.

Everyone assumes only rich people and celebrities do what we did, and those couples are assumed to have their own resources and solutions. Some people even feel called upon to chide and predict terrible outcomes. It's annoying, but that's life when you choose to swim upstream, culture-wise.

I would be perfectly fine if the author had simply qualified his statement with something like, "....if you are married and/or if you have kids....." This at least acknowledges the fact that not everyone is married and not everyone has kids. It would not have lengthened the article by any significant amount.

 

[W2R]

All I know is that (as everybody here knows) I am really enjoying retirement so much!!! The only thing that could make it better would be eternal youth, and that's not on the horizon.

I don't want any more money. I have about the same as most on this forum, I suppose, and for me that is plenty for everything I need or want. Guess I am lacking in imagination. For me any extra $$ would just be a nuisance. I'd rather just enjoy all this free time than figure out how to spend more money wisely. "Oceans of Time", as member Goonie used to call it.

 

[Which Roger]

OK - I don't get this. Why would managing say $5M, $8M, or $10M be any more stressful than $3.5M? I just don't see the difference. I think this is someone's opinion (imagination).

Just a guess (assuming the statement is accurate): Most people who have $10M don't have all their assets in stocks, bonds, and cash. A lot of it is tied up in business interests, real estate, etc., which would tend to cause more stress.

 

[audreyh1]

Just a guess (assuming the statement is accurate): Most people who have $10M don't have all their assets in stocks, bonds, and cash. A lot of it is tied up in business interests, real estate, etc., which would tend to cause more stress.

Most retired people with assets > $3.5M?

Are they really retired if a lot of assets are tied up in business interests and real-estate that has to be managed?

 

[nun]

I suspect the major stress lowering comes when all income needs are covered by guaranteed income streams (pension/annuity/social security) AND you have guaranteed affordable health care (retiree healthcare/Medicare with Medigap covered). Then managing any additional investments is not so critical. But this has nothing to do with the size of any additional investments.

That's been my experience. As a state retiree I get a pension and healthcare for $100/month. When I hit Medicare there's a cadillac state plan for that too so I avoid all complexities of what supplementary plan to buy.

Having my income come from places other than my investments allows me to stay heavily invested in equities and not worry about market fluctuations.

 

[euro]

OK - I don't get this. Why would managing say $5M, $8M, or $10M be any more stressful than $3.5M? I just don't see the difference. I think this is someone's opinion (imagination).

In fact, as our retirement assets have grown to exceed what we need for income and possible emergencies, the stress of managing investments has dropped slightly. If we have another nasty bear, the absolute impact should not be as bad because the portfolio grew before the hit.

Money management is something that scales very easily - you can keep using the same techniques as the pile grows. And guess what - you have to become a "wealth manager" in retirement whether or not you have "way more than enough" as long as you have investments you want to make last.

I suspect the major stress lowering comes when all income needs are covered by guaranteed income streams (pension/annuity/social security) AND you have guaranteed affordable health care (retiree healthcare/Medicare with Medigap covered). Then managing any additional investments is not so critical. But this has nothing to do with the size of any additional investments.

Now if someone argued that lifestyle creep tended to make life more complex, and thus a bit more stressful, once folks' net worth exceeded some magic number, I would buy that argument. The solution is easy - be careful about your lifestyle creep - make sure the additional complexity is adding to your happiness, not subtracting from it. Lifestyle creep can definitely happen unconsciously (just like while working), so someone has to be aware to manage their lifestyle to reduce stress/increase happiness.

"OMG, we have to fly first class again?!?! I'm hating this!!!!"

I agree. My take on the leveling off of satisfaction after 3.5KK in assets is that for folks who are used to leading a reasonably frugal lifestyle, this is probably the point where all the NEEDS, and many or most of the WANTS are covered. After that, not much to be gained.

 

[euro]

Most retired people with assets > $3.5M?

Are they really retired if a lot of assets are tied up in business interests and real-estate that has to be managed?

Good point, although all of these can be run "hands-off" if necessary (property managers, triple net leases, REITs, silent partnership in business ventures, etc). Active participation is usually by choice.