Sensible Perspectives

Want To Be Happy In Retirement? Spend Your Time And Resources On These Things.

Posted by on March 1, 2018

A few years ago, I had the pleasure of attending a seminar by Dr. Michael Finke, then a professor at Texas Tech (he is now at The American College of Financial Services). He spoke about measuring life satisfaction in retirement. I remember being impressed by his talk and wanting to write my own article about it. Now, having since helped several clients transition into retirement, I thought it would be a good time to do just that.

Finke and co-authors Nhat Ho and Sandra Huston summarize the relevant research in their paper, Spending, Relationship Quality, and Life Satisfaction in Retirement (you can download the full article here). The authors examine what types of activities and spending lead to higher levels of self-reported satisfaction in retirement. They begin with the hypothesis that higher dollar expenditures on leisure activities and a greater number and degree of contact with friends and family tend to lead to higher satisfaction, after controlling for wealth, health, race, education and age. My simplified version of their model is:

Satisfaction in Retirement = A function of (Spending on Leisure and Quality of Relationships)

To test their hypothesis, the authors aggregated data from two sources: the Health and Retirement Study (the largest longitudinal panel study of its kind of Americans over 50) and the Consumption and Activities Mail Survey (a supplementary survey of the Health and Retirement Study). The combined data sets provide detailed information about the spending habits and quality of relationships of American seniors. (This is the right-hand side of the equation).

The authors examined the happiness of retirees on a scale of 1-7 (the left-hand side of the equation) to try to determine what types of spending choices and relationships make people happiest in retirement. The nuances of the study are beyond this post (I encourage you to read the full paper), but I summarize their findings here.

Spend your money on experiences, not on stuff.

You may be familiar with the notion that human beings tend to derive greater pleasure from doing things rather than buying things (what the authors would call the difference between “experience goods” and “material goods”). The data strongly support this idea.

Of the 11 different spending categories the authors examined, things like food, housing, clothing and personal care, only leisure had a statistically significant impact on respondent’s self-reported satisfaction. Specifically, “a 10% increase in the leisure budget is associated with a .14 increase on the life satisfaction scale (that ranges from 1 to 7).” To put that number into perspective, to buy an additional half increment (0.5 points) of satisfaction in retirement, you could increase your leisure budget by 36%. By comparison, the difference in happiness derived from buying groceries at Whole Foods versus say Trader Joe’s was negligible (but, oh the bill!).

Foster your relationships.

As impactful as leisure is on a retiree’s happiness, one’s relationship with their spouse has a much more substantial impact on life satisfaction. How much so? The self-identified happiness gap between someone in a poor spousal relationship and the average unmarried retiree is .6 units of life satisfaction. That unhappily married retiree would have to increase their leisure budget by 43%(!) to be as happy as his or her unmarried counterpart. And the gap between the person with a poor versus a high-quality spousal relationship? 1.4 units of life satisfaction. Do the math. That’s a lot of vacations.

In addition to spouses, the authors also examined the impact of people’s relationships with their children and friends. Interestingly, the authors found no evidence that either the number or degree of contact with children contributes to retirees’ life satisfaction. (Your situation, of course, may differ). However, both the number and degree of contact with friends are statistically significant. More frequent and higher-quality contact with friends are positively related to life satisfaction.

Healthy, wealthy and wise. But if you had to choose only one, choose healthy.

There’s some good news out there for those who might be concerned about not having saved enough for retirement. Examining the variables which control for financial and human capital indicates that neither wealth nor income directly impacts life satisfaction. (Wealth of course indirectly impacts satisfaction, since more wealth means more money to spend on leisure activates). Health status, however, is an important factor in contributing to a happy retirement. To put things in quantifiable terms again, the authors found a 1.7-unit difference in life satisfaction between retirees who self-reported excellent versus poor health.

Putting it all together.

Having worked with clients either preparing for or transitioning to retirement, I find studies like this very interesting. Understanding the types of activities most likely to lead to positive outcomes is like getting a glimpse into our future potential selves, or for those of us already in retirement perhaps giving us a better perspective on our own lives.

I encourage you to think about what makes you happy, bearing the results of this study in mind. Think long and hard about your goals and make sure you’re taking the steps to achieve them. If you’ve not spoken with your financial advisor about them, or if it’s been a long time, contact him or her and make sure you’ve incorporated your wishes into your retirement plan.


Frank Napolitano is a Senior Financial Advisor and CERTIFIED FINANCIAL PLANNERTM. To speak with Frank or another member of our team about your financial future, get in touch today.

  • Scott Santarelli

    Great article!

    • David Deeter

      Thanks! Let us know if you have any questions!