I am fascinated by what makes the happiest retirees tick.
Early in my almost 20-year career as a Certified Financial Planner, I realized that many people have misconceptions about what creates true enjoyment during the retirement phase of life.
One statistic really struck me as I pondered the true source of happiness in retirement. A Princeton University study on income and happiness found that people get progressively happier with increases in income only to a point – the magic number being $75,000 a year. Beyond this income level, however, the happiness a person gets from additional raises and bonuses tapers off significantly.
This information kindled a realization in me: people are writing about what level of income makes working Americans happiest, but no one is looking at a similar correlation between retirees and their money. I wanted to explore the relationship between money and the happiest (and unhappiest) retirees. So, I decided to take a very deep dive on that topic. The result is my book, You Can Retire Sooner Than You Think.
To do this, I conducted a national survey of 1,300 people in 46 states. I asked three dozen questions about behavior, life, finances and general happiness. I aimed to put preconceived notions aside and to find an objective answer for a very simple, very important question: what are the main factors that contribute to a happy retirement?
The results were eye-opening. I realized that I, too, had had a preconceived notion about what makes retirees the happiest.
My research identified 18 habits of happy retirees. While all 18 offer valuable lessons, the following three habits can have the most significant influence on your post-career happiness.
Pay Off The Mortgage
On the financial side, the happiest retirees prioritize paying down (or, even better, paying off) their mortgages. I found this component to be critical. So much so that I found a direct correlation between retirement happiness and the number of years left to pay off a mortgage – the fewer the years there are left, the happier the retiree.
Thus, tackling your mortgage payments is a big step towards ensuring happiness in post-career life. There are many ways to approach this endeavor. You can choose to pay it off in one fell swoop if you have the non-retirement cash to do so. Or, you can start adding $100, $200 or $300 a month more towards your payment. This practice can shave a full decade off of a 30-year mortgage!
Say you’re in your 40s and start aggressively paying on your mortgage now. Instead of being free and clear at age 70, you could be finished with payments by age 60 or 65. I realize this concept looks good on paper to most folks, but only some put it into practice. The happy retirees are the ones who actually do it. In fact, retirees who report that they are happy are four times more likely to have their mortgage paid off in five years or less.
Have Multiple Income Sources
While the level of income is important (the happy group reported a larger income number than the unhappy group), what also makes a difference is the number of different income streams. Diversification of income is a key here.
The happy group has an average of three income sources, while the unhappy group has less than two. These sources include Social Security and pension benefits, part-time work, rental income, other government benefits and then, of course, investment income.
Develop Core Pursuits
And finally, busy retirees are happy retirees. They are avid golfers, hikers, runners, gardeners – you name it. The specific pursuits don’t matter. What really makes retirees the happiest is that they have hobbies and activities they love. My research found that the happiest retirees have an average of 3.6 core pursuits, while the unhappiest have less than two.
The big takeaway I got from my research was that the happiest retirees know what to do with the money they saved for retirement. Sure, those with higher income streams tend to be happier, but it’s not because they have money for money’s sake. It’s what they do with it that makes them enjoy their golden years. They have purpose and pursuits. Their money is a means to an end.
My advice for anyone with retirement on their minds, whether in your 20s or your 50s, is to get some hobbies. Find the things in life that give you the most enjoyment. You don’t want to work nonstop only to retire and find out you don’t know what you love. It’s not healthy. Go ahead and establish your core pursuits as early as you can. Sure, they may change and shift, but the point is that you have them.
While many folks may argue that money is the key player, and that people retire early because they have the money to do it, this is only a half-truth. The full picture is that early retirees leave work life in favor of pursuing what they really want to be doing full time. These retirees are happy because they spend their money on the things that bring them joy. We can all learn a lesson from them.
To take your own deep dive on retirement happiness, pick up my book, You Can Retire Sooner Than You Think.
The original AJC article appears here.
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.