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The three pillars to a happy retirement

This is an edited transcript of an interview between Dr. Daniel Crosby and Dr. Michael Finke, Professor of Wealth Management at The American College of Financial Services, on the Standard Deviations podcast.

Dr. Daniel Crosby: I've read your writing on the three pillars of retirement satisfaction. Can you tell us what they are and spend a little time unpacking what can be done about the nonfinancial ones to help us prepare for the nonfinancial dimensions of retirement that I think are often overlooked?

Dr. Michael Finke: I call them the three pillars because when you run regressions, you know that there's a cluster of three different variables that are going to consistently be the strongest predictor of satisfaction and retirement.

And those are, one, health. Obviously, health is important because if you're in better health, you're going to have a more satisfying retirement because it lets you do so many more things. And I think that all of the three things, the underlying characteristic that ties them together is ... each is an investment. By an investment, that means that you can make a sacrifice earlier on in life in order to enhance that component, that pillar of life satisfaction in retirement. So, one of them is health, that's obvious. There's only so much you can do. Some of it is under your control. Some of it is not.

The second is money. And there has been some really recent – there was this debate about whether money actually made you happy because Danny Kahneman about 20 years ago did a study with an economist where they found that it seemed as you earned more money, you were more happy up to a plateau. And the plateau was maybe US$70,000 or US$80,000.

But other researchers found something completely different, which is that the more money you had, the more income, the happier you were, and it just kept going up. And so, there was a really fascinating article that was done recently by the original authors and the other authors. And what they found was that there was a confound that they hadn't taken into account in the data, and that is that people who are unhappy are made happier by money up to a very low point. And after that point, they continue to remain miserable. But people who are generally happy, the more money they have, the happier they get.

So, one of the questions you have to ask yourself is, are you miserable? In which case, money is not going to have much of an impact on happiness. But if you're generally a happier, more positive, optimistic person, then the money is actually an input into doing stuff that is going to make you more happy.

And remember, money is, it's just grain paper. It has this imaginary value that we place on it. It's numbers on a computer screen. The money itself is not what provides value. It is the access to stuff, to experiences, you can hire other people's time, you can buy physical things with it. But how you use your money is also very important. And there's a lot of great research that shows that people who are smart about how they use money are consistently more happy than people who spend money on the wrong things, the things that ultimately do not lead to greater life satisfaction.

Now, in addition to health and money, of course, relationships consistently show up as the most significant predictor. The strongest single predictor of life satisfaction is the relationship that you have with your spouse or partner. So, the person that you're spending the most time with in retirement is that spouse. And if you have a positive relationship with them, that is the strongest predictor of retirement satisfaction.

So, again, that is an investment just like any other investment, knowing how to have a positive, fulfilling relationship with your spouse. If you have a negative relationship with your spouse, it's also a significant but negative predictor of life satisfaction. So, it's not just being married. It's being married to someone with whom you have a positive relationship with. And in fact, as a side note, when we broke it down by age group and gender, the happiest group of retirees is in fact women who get divorced between the ages of 60 and 65. They are the happiest retirees.

I think that relates to a problem that very often happens in a relationship when people retire. And that is that men tend to have a more limited social network and oftentimes that social network revolves around their work. And women tend to do a better job of investing in relationships that they can then draw from in retirement outside of the workplace. And so, what that means is that women oftentimes want to be able to maintain those relationships in retirement. Men all of a sudden become far more – in an opposite sex couple, they become far more reliant on their relationship with their wife. And the wife is often struggling to be able to manage her existing relationships and this perceived obligation that she has to her husband. And oftentimes they may not have developed the capabilities to spend all day with each other. They get married, and they see each other for breakfast and dinner, but not necessarily for lunch.

Developing those skills oftentimes – and I hate to stereotype, but oftentimes men just have not developed the same social skills that they need to have to be able to flourish in retirement. Women seem to be better at it. And it's one of the reasons why men tend to struggle more when their wives die than wives tend to struggle when their husbands die because the men are so reliant on their wives as an input into social engagement.

The bottom line here is that human beings are programmed. We release endorphins when we interact with other human beings. Oftentimes, we think that we're in control, but basically, we're subservient to the older part of our brains that's squirting out things like dopamine and making us happy. And our brains are programmed to make us happy by having stronger connections with a social group. That is – there's this great book called The Secret of Our Success, which is all about the idea that human beings have evolved. Our strength, the thing that makes us successful as a species is not necessarily that we're stronger or smarter. What we're able to do is, we're able to create these very cohesive social units that we can have – our brains, our prefrontal cortex is big enough to have a social unit of 150 people, in which case we can act collectively in a way that other animals can't. And that really is the secret of our success, which means that we've developed all of these skills to maintain that large social unit. And our bodies actually have responded physiologically to that by rewarding us for maintaining these more close social interactions.

If you recognize that we're basically these big meat sacks that get rewarded with dopamine, then we can be – first of all, we can anticipate ways that the dopamine makes us unhappy. And we can also anticipate ways that dopamine makes us happy, and being more social is a way to make ourselves happy.

Dr. Daniel Crosby: When it comes to relationships, it really is that spousal relationship that reigns supreme. I'm sure there's a halo effect to positive relationships generally, but that marital relationship, that partnership relationship is indeed the most important. Is that right?

Dr. Michael Finke: It is. That's the closest relationship. But let's talk about friends for a moment, because friends are also a significant predictor of life satisfaction. And friendship, just like health, just like money, friendship is an investment.

My wife and I did this research together, and it's something that we have realized that has actually changed our behavior. It is a significant predictor of life satisfaction. But we also realized that as you reach middle age, very often those long-term friendships that you've developed over the years, you start losing them. You lose track of people. You don't interact with them as frequently.

But you can change that. You can actually make an effort to visit your old friends. You can phone them up. You can text them on a regular basis. That's an investment that takes time and effort and energy. But you make that investment so that you can then draw from that friendship later on in life. And in retirement, that becomes particularly important, the ability to draw on those long-term friendships that you've established.

So, that's an investment like anything else. And I think it's one of these aspects of life satisfaction that I was not aware of. I knew it was important to maintain friendships, but I hadn't looked at the data. I hadn't stared it in the face and thought, am I doing as much as I should? We both made an effort at that point to reestablish the friendships that we most valued, to make an investment with them, to buy the airline tickets. That's what it takes to maintain those friendships. And it's an investment like anything else. Why save that extra $1,000 in a 401(k) when instead I could pay the $1,000 for plane tickets to visit a friend and be able to maintain that relationship? Because I'm going to get more happiness out of that than I am from the $1,000 that I invest today.

And that's a really interesting way to look at it is there's these trade-offs. You've got these health relationship and money trade-offs. Now, obviously, more money tends to make people happier. But it is the combination of money and relationships and health. If you don't have your health, what use is the money? If you don't have the relationships, you have a lot of money, it doesn't necessarily make you happy. You have to be able to recognize that all of them are investments and you combine all of them to achieve true satisfaction.

Dr. Daniel Crosby: When you think about smart spending or smart investment, what are some ways that we can spend money that make us happy?

Dr. Michael Finke: When you look at the predictors of life satisfaction in terms of your budget allocation, which is something that we did in that research, the only consistently significant positive predictor was leisure spending. And within the leisure category, it was social spending. Any sort of spending that increases your interaction with other human beings. So going out to dinner with friends, this is one of those things. And it also worries me about how retirees spend, which is they often cut back on the frivolous things when the market does poorly, and they're worried about their money. If you cut back on things like going out to eat with friends because it seems frivolous, you are cutting back on the most important predictor of life satisfaction, the thing that gets you the most happiness per dollar spent. You have to be careful about how you spend the money and things.

Now, I'm going to give you an example of a thing that I think is a good idea for men in particular to spend money on. And I actually found this weird finding, which is spending money on cars that actually had a positive impact on satisfaction, but it wasn't that strong. But I have a hypothesis, which is not necessarily supported by data. And that is that among men, spending money on something like a classic car is entrée into a social group. It's not the car itself that provides that much happiness. They can drive it. They can look at it. That provides a certain amount of happiness, but it's not worth what they're paying for. What is worth it is that it makes them part of a social group. So, they can go to talk with other dudes and they can talk with each other online and they can develop friendships. This is an entrée that was facilitated by buying a classic car, but it wasn't the classic car itself.


This is an edited transcript of an interview between Dr. Daniel Crosby and Dr. Michael Finke, Professor of Wealth Management at The American College of Financial Services, on the Standard Deviations podcast.

James Gruber is an Assistant Editor for Firstlinks and This article is general information.


Steve G
July 09, 2023

Health, Wealth and happiness! The three lines on our wrists. Absolutely agree with the comments regarding men but the prospect of joining a group makes me cringe although it's probably necessary. How I deal with this is another matter but the investment function I've got down pat.

July 08, 2023

Fantastic article, full of truth. I'm lucky in retirement to be healthy, have a good (enough!) relationship with my wife, loads more money than we need, successful progeny, a healthy and happy grandchild and a moderate network of long time friends. I swim daily with mates, followed by congenial banter on world events, social and economic matters. As regularly as commitments permit on other days I cycle or walk with other groups. According to this article, I should be happy. To a degree I am. Provided I disconnect myself from what's happening to Australia's formerly cohesive society. The rise of radical progressive activism, cancel culture and socialist indoctrination of young children makes me worry about our nation's future. There seems an obsession with identity politics, collectivism over individualism and finding classes of helpless "victims" who must be compensated by the rest of us, regardless of the cost. These activists treat anyone with a different perspective disdainfully, relying on invective and manipulation of emotions rather than logic to impose their agenda on the majority. That does not make me happy.

July 09, 2023

Hi John . You Absolutely nailed with your comments on radical progressive activism . I echo all your latter sentiments 100%

Linda M
July 14, 2023

I second that.

July 09, 2023

On the day they Robodebt Royal Commission Report was tabled...

Jim Butler
July 09, 2023

Great reply TonyD: succinct, direct, soundly based on the RC evidence. The RC Report exposes the massive damage that such views can enable.

Aaron Janes
July 09, 2023

Ok boomer .
Society is changing, you and me have had our time so let it be . The biggest threat to society is old ppl with narrow views electing politicians that try to hold the wo rld to outdated thinking and failing to adapt to science.

Oz Dart
July 25, 2023

Yes, societies have always changed over time but only in those things that didn't render the society vulnerable or defunct by said changes. At the same time, societies have remained constant, unchanged in those fundamental basics of human nature that identify us as exactly the same beings of a thousand years ago. As such, outdated thinking is only relevant to those things where new knowledge or practice advances or amuses us as a society. In all other senses, "old people" thinking is indeed the cohesive fundament of every successful society, and that needs to be maintained and passed on for us to survive for the better. Thus, the only time you've "had your time" is when you kick the bucket - young or old.

July 09, 2023

Very relatable as far as I am concerned Golf probably is an analog to classic cars - the game being one part of the overall social experience Also agree that more work than previously thought is needed for an elevated spousal relationship, especially when the support needed by kids and grandkids declines .

Trevor Wickham
July 09, 2023

John well said and you'd have my vote if you were running for office based purely on your words. Very succinct, to the point and I suspect you have nailed what the majority of us hard working Aussies are thinking. Particularly us (so called boomers) that didn't grow up with all these tax payer funded handouts and subsidies and tended to only whinge to ourselves and not the world.??

July 10, 2023

100%, I am in similar stage of life / lifestyle and have similar concerns to you. The future of Australia worries me deeply.

July 27, 2023

There is significant amount of researching coming out about your precise demographic's ability to deal with the nostalgic past. Distancing yourself from online chat forums and anything to do with Murdoch media would be a very good starting point

August 01, 2023

Absolutely agree. It is sad to think that our elected representatives now seem to have no respect for truth, facts, morality or freedom of speech anymore and that makes me unhappy. This obsession with the UN and WEF is extremely worrying. We won’t have the personal freedom to work toward the things that can make us happy. The fact that there are people like you said actually fervently infusing themselves into policy that will make us all subservient to a global handful of elites is most concerning.

Rudy Boeff
July 08, 2023

Interesting article. I have a saying... "Money can't buy you happiness, but it's nice to cry in a Mercedes"

July 08, 2023

For better or for worse, but not for lunch !!!

James Gruber
July 06, 2023

Love the wit, BeenThereB4.

David Williams
July 07, 2023

Thanks for a nice articles and comments. Our research identified five important factors which contribute to a productive longevity (the rest of our life) and several elements within each. We are increasingly different from each other as we age so there appears to be no single 'magic' bullet that hits the mark for all of us. Just as ageing is a process with many variables, making the best of it involves a process too, which we call personal longevity planning. It is really the foundation for our important financial and estate planning decisions. It provides a personal time frame along with the reasons and plans that enable people to shift their perspective as things change and still seek and expect the best of what's available to them, including sustaining personal interactions.

July 07, 2023

Stay agile and follow your b_lissom, remembering that if none of us dined aloof in retirement then there'd likely be no Henry David Thoreau(s) among us.

"If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away." (Thoreau)

Peter Sheahan
July 07, 2023

A great read...thank you James. Whenever I sit down with a group of elderly guys and find the conversation is not quite flowing, I go around the table and ask each of them "what was your 1st car?" and "how fast did you wind it out to?". The stories around the widest variety of makes and models, good banter, laughter, cohesion and one-up-manship within the group certainly revs up.

Your last paragraph really resonates with me. "1974 Toyota Corona MkII (Yellow)" purchased in 1977. Dreamed of a late 60's Monaro but that never happened. Next door neighbour had one of those.

James Gruber
July 09, 2023

Nice thoughts, Peter, thank you.

July 06, 2023

Great article. I had not put it together until now but wife and I are pretty happy. Reasonably fit for early 70s, comfortable self funded pensions, 1971 MGB, Rotary, RFS volunteer work which gave us new friends and still in touch with many old Navy and a few school friends. It sort of works for us.

July 08, 2023

I agree. Fortunately, I have been a member of many clubs and non-profits most of my life. Most have revolved around learning skills, making things and having fun with friends without necessarily spending much money: Men's Shed, Toastmasters, cycle racing and touring, singing barbershop to raise money for kids with cancer, Scouts, car clubs, aero clubs (the exception to cheap fun) etc. As the body slows down, I've just changed interests, eg from cycling to hiking - which means meeting a whole new bunch of interesting people...

July 06, 2023

Without discounting the role of health, money and relationships, we should also accept well-managed expectations contribute to satisfaction. They need to be calibrated in context: national and local standards, economic developments relating to location, calling, peer pressure, inherited and acquired aspirations, resilient enough against left-field unknowables in health, money and relationships. Hoping for pleasant surprises (lotto, reduced tax, dear aunty's bequest) we need to be prepared for unpleasant ones (treatment and other living costs, innovations in fraud, government incompetence compounded by immunity as in robo debts, grasping relatives as we become weaker, big town misconduct - as in Haynes RC).
Lest we fare okay on the important trio but fail in adapting expectations, we need to prioritise this along with the three.
Imagine a satisfied Bangladeshi retiree elevating expectations to Monaco measures. We would be seeding dissatisfaction.
We also need to trim what we expect of retirement nest-eggs. Possible, if difficult, at a national level to attain reasonable standards for one's own twilight time, but if leaving an inheritance is added, impossible but for a few.

James Gruber
July 07, 2023

Thanks Ramani. H (Happiness) = R (Reality) - E (Expectations)?

July 08, 2023

We are on the right track, James.
If I may refine your succinct equation to:
H = R to the power(lessness) of E
H is the algebraic sum of health, money and relationships (a panel of medicos, accountants and psycho therapists presided over by an actuary will combine these disparate elements)
R is the Reality, based (on ever-changing) retiree perspective
E are expectations which exert a disproportionate power.
This formula could become the Retirement equivalent of Relativity.
Before it could be usefully applied by a retiree, however, Statistics should resolve the problem of the fallacy of averages: how do we ensure inferences at the universe level are valid at the level of individuals constituting that universe?
Life is not meant to be easy...
Ramani ??

July 08, 2023

Perhaps also, H (Happiness) = E (Expectations) >= R (Reality).

Or as Epictetus, a stoic philosopher, said: “Wealth consists not in having great possessions, but in having few wants.” Substitute "wealth" for "happiness" and we're getting closer.

July 06, 2023

Wow! That is such a moment of clarity. Husband and I retired a few years ago and, while I work hard on maintaining old and new social relationships, hubbie had to re-establish these connections. He’s done so through golf and being part of the strata committee. Your article highlighted what we have been doing. And it works. Thanks for that.
Wow moment!

James Gruber
July 09, 2023

Wonderful Jen, nice to hear it.


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