Does More Money Make You Happier When You Retire? Not Always

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Many of us imagine a future in retirement when we leave the obligations and stresses of our work life behind; but few of us take the time to create a plan for what we will actually do when we retire and who will share that life with us.

CPA financial planners help clients achieve their financial retirement goals, but there’s more to retirement planning than making sure there’s enough money in the bank. The biggest challenge is ensuring there’s financial stability along with investing in developing a meaningful social network that will create a fulfilling retirement.

Here are some things you can share with your clients so they can create a well-rounded plan.

1. For those of us who are savers, the good news is that data from a nationwide Health and Retirement Study states that financial wealth does make us happier, and the effect is generally linear—higher wealth groups are significantly happier, but there’s a limit. At about $3.5 million of savings, retirees actually become less satisfied. This may be because they have more money than they could ever spend in retirement, and essentially feel burdened with the additional stress of managing it.

Despite the positive relation between wealth and happiness, many retirees in the top 20% of wealth have a tough time actually spending as much money as they should. Surveys also indicate that retirees who have saved money throughout their lives often have a difficult time spending down assets at retirement. In fact, the average spending in the top wealth group is actually 35% below their income. Over time, the wealthiest retirees just keep getting wealthier, on average. The wealthy retirees who are most likely to spend down their assets are those who did not develop a long-term habit of thrift but instead may have received their wealth all at once, such as from a large inheritance or selling a business.

2. Most retirees see their frequency of social interactions decline as they get older, perhaps as a natural consequence of losing contacts made through work. This adjustment can be particularly challenging for men who did not develop a broad social network outside of work before retirement. This is one reason why marriage quality becomes an even stronger predictor of satisfaction for retirees, who now rely more on their spouse as the primary source of social contact. Couples with good marriages tend to be much happier than single or divorced retirees. Unhappily married couples report they are even less happy. Relationships with children are just as important in retirement, too, as negative relationships with children create greater dissatisfaction than negative relationships with friends and other relatives.

3. In Social Indicators Research, Russell N. James III reported two interesting research findings. First, retirees who live within 10 miles of their children are significantly less happy in retirement. Second, retired homeowners are generally happier until they near age 80, and at this point, those who rent become more satisfied than homeowners. James noted that reduced social interactions of homebound retirees and the increased difficulty of caring for a home could be the cause of this shift in satisfaction.

Statistics like these show us that a fulfilling retirement requires comprehensive planning that includes financial preparation, as well as development of social networks and stronger personal relationships. Through your planning efforts with clients, you have an opportunity to open their eyes to additional retirement needs and issues related to long-term happiness. These are foundational and rather time-consuming objectives, which is why your clients will be better prepared—and grateful—that you helped them far in advance.

AICPA PFP/PFS members have access to the latest guide on retirement, The CPA’s Guide to Practical Retirement Planning, providing guidance to CPAs advising clients in all aspects of retirement planning matters and how it affects their quality of life during retirement. Non-members can download free excerpts of the guide. Additional retirement resources are available on the PFP Division’s Retirement Planning Center.

Michael S. Finke, Texas Tech University. Michael is professor and director of the Retirement Planning & Living Department of Personal Financial Planning with Texas Tech University.

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