The Four Factors That Drive Retirement Happiness

By Ben Dolan, CFP®

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A few weeks ago, I was chatting with a client about compensation, retirement savings and work-related stress when he said something interesting: “my lifestyle won’t be much different if I retire with $3 million instead of $7, $10 or $12 million.” This insight was helpful and guided our discussion toward what a meaningful retirement might look like for him and his family. Far too often, especially in today’s greed-crazy clickbait dispersed from media outlets and projected on social media, those of us preparing for retirement are to assume that: 1) everyone around us getting rich, 2) we need more and more wealth, and 3) obtaining wealth will lead to a happy, enjoyable retirement. 

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While our financial health in retirement has an impact on our happiness, other factors come into play in significant ways. David Blanchett, writing at SSRN.com, highlights the interplay between these factors in a recent study. According to Blanchett, subjective health and social connection will play an outsized role in retirement satisfaction. For example, his study found that only 17% of retirees with poor health and low social connectivity were “very satisfied,” while 82% of retirees with excellent health and the strongest social connections were very satisfied. 

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This was not surprising. What was surprising, however, was the regression analysis which suggested that subjective health and social connections, categorized as “well-being” factors, had even larger effects than financial variables after controlling for other characteristics.

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When it comes to wealth in retirement, Blanchett found that the combination of 1) savings (e.g. 401(k), IRA, after-tax investments) and 2) guaranteed income (e.g. social security, pension, annuity) improved retirement satisfaction but also created a dilemma: liquidity is reduced when guaranteed income is provided (e.g. annuitizing pension payments means less control over the total asset). In other words, large, unexpected expenses that reduce your liquidity (e.g. a car, healthcare expenses) could cause stress if you don’t have the right balance between savings and guaranteed income.

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One of the strongest findings in the study was the additive nature of all four variables: subjective health, social connection, savings and guaranteed income. When retirees scored poorly across all four, ~15% were very satisfied. When retirees scored highly across all four, ~95% were very satisfied.

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Finding the balance between wealth and well-being is critical when preparing for retirement. Obviously, we must think about how to fund retirement. But are we also intentional about our connection to faith, family, and friends? Should we sacrifice our health in our working years while missing out on kid’s activities or time with our elderly parents to earn more? Should we help care for grandchildren, and even move to do so, if it means leaving good friends behind? 

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Answers to these questions are not easy and should be considered together as part of the overarching retirement plan. But here are some practical steps to consider:

• Prioritize your health before retirement, not after. 
• Invest intentionally in friendships and family relationships. 
• Build enough financial security to support your desired lifestyle. 
• Balance guaranteed income with accessible savings. 
• Design a retirement you want to live—not just one you can afford.

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A healthy retirement plan will try to score high on the wealth variables, while prioritizing well-being.