The Key to an Enriching Retirement

Christine Benz: Hi, I'm Christine Benz for Morningstar. Which factors in retirement tend to make people happy and which really don't? Joining me to discuss that topic, which is the focus of a conversation at the Morningstar Investment Conference, is Michael Finke. He is a retirement researcher at the American College.

Michael, thank you so much for being here.

Michael Finke: My pleasure, Christine.

Benz: You have researched the factors that tend to contribute to people's happiness in retirement, and couple of them, I guess, seemed fairly obvious: being in good health certainly helps people maintain happiness; having money, you have also found, is correlated with happiness. Can you provide a little bit of nuance to that? What do we know about the connection between wealth and happiness in retirement?

Finke: Yeah, when you look at retirement satisfaction, what you really consistently see are the three factors that predict life satisfaction, and those are, as you mentioned, money and health, but also relationships. And much of my research goes into depth into each one of these three topics. What is it about each of these elements that actually provides us with life satisfaction? And the other important thing to remember about each of those three elements is that they represent an investment: an investment that you can make during your working years that is going to pay off in the future. Now, it's obvious when we're talking about money but maybe a little bit less obvious when we talk about things like relationships and our health, but both of them are in a sense investments. And I think it's important to begin thinking about investing in the other two pillars of happiness in retirement while we're still in our working years.

Benz: Right, people get so focused on the financial piece. But perhaps you can talk about that. Do we kind of – if we have a certain level of income and we have security in retirement, can we kind of max out on the happiness and satisfaction factor, or are wealthier people actually happier than people who are secure but have less wealth in retirement?

Finke: Generally speaking, the more wealth you have, the happier you are. But of course, you can spend money on the wrong thing. So, we've actually gone into the survey and looked at individual retirees to identify the ones that seem to be living well and the ones who don't. And it's pretty obvious that the ones who aren't living well are the ones who are not spending enough on some of those social-spending categories, those are really the most predictive of life satisfaction. So, what is social spending? Going out to eat with friends or going out on a vacation or going to a show. Spending money on other things doesn't really seem to have much of an impact on life satisfaction, but that really provides insight into using your money effectively because it's just numbers on a computer screen or green paper; it doesn't by itself make you happy. You have to use it in a way that is going to make you happier.

And of course it does seem that we are happier when we have our money in a flow, so some kind of an income as opposed to a stock, a lump sum of assets, because our tendency is very often not to actually spend the assets for fear of potentially running out.

Benz: Right. I want to delve into the social connections, Michael, you have found that a happy marriage tends to be correlated with happiness in retirement, probably no surprise there. But can you provide a little nuance on other types of social connections that might tend to confer happiness and satisfaction later in life?

Finke: Yeah, one of the things that the health and retirement study, which is a study of 20,000 retirees, allows us to do is to identify some of these characteristics of relationships that might be associated with life satisfaction. And what we find is that a happy marriage, so a fulfilling marriage, is probably the single most important relationship that you can have in retirement. And it becomes even more important after retirement because you spend more time with that person.

But we also find that friendships actually become more important. So, deep friendships in retirement. And I mentioned before that that's an investment. That really is an investment, something to pay attention to during our working years, is: Are we making investments in those long-term friendships that we can then draw from in retirement? Because we find that they become very important after retirement--not quite as important as a marriage, but important in terms of creating a fulfilling retirement because we are social beings and the more social interactions we have, generally speaking, the happier we are.

And we've discussed this in the past, but I should make the point that there is no evidence in these more-robust multivariate analyses that your relationships with your children actually have an impact on life satisfaction in retirement. Which I think is surprising to a lot of retirees. But if you go on some of these retiree discussion boards and someone asks this question, Should I move close to my kids in retirement? Universally what you get is those who have actually experienced retirement, say very often that you shouldn't rely necessarily on your children as a source of happiness, because very often what happens is you don't see them as often as you expected to see them. So maybe you see them once every couple of months. They're busy, they potentially move, and then that creates a certain amount of resentment. So, making those investments, especially in friends but also in the quality of your marriage, has a big impact on life satisfaction.

Benz: I want to talk about this pandemic period, Michael, and do you think there are some insights that people who are working can take away from this experience for their own retirements? Can you talk about that issue?

Finke: Some financial advisors had mentioned to me that they actually recommend that their clients take an extended vacation but don't actually travel--to spend time with each other and start thinking about the routine that they're going to fall into in retirement. And what are some things that they need to work on and think about before they actually retire--so, practicing retirement. Which I think makes a lot of sense, but we have all been practicing retirement now for many of us who are sort of intellectual class workers, we've in fact practicing retirement for the last year and a half. And this has, I think, given us a lot of insight into what retirement is actually going to be like. So, we're in front of a computer screen, we're doing work, but we're also spending a lot of time with our family and our spouse, and we're seeing that there are some potential cracks that can arise.

There is a great book by researcher Sara Yogev on this topic of relationships in retirement, and what she identifies is an issue that's oftentimes related to the way that men approach relationships because they get a lot of fulfillment from relationships in the workplace. Women tend to initiate more friendships outside of the workplace that they then rely on in retirement, and then oftentimes what happens is that the husband, in an opposite sex relationship, will rely more on his wife in retirement, and that can create a certain amount of friction because the wife wants to be able to maintain a certain amount of independence and maintain the relationships with her friends. And the husband hasn't made the same investments. And so, coming to an understanding about what are the obligations you have with your spouse in terms of the amount of time that you spend with them, what is that relationship going to look like. I think we're all beginning to understand that a little bit better. So, since we're experiencing sort of a retirement style of lifetime. Oftentimes we would go off: We're married for breakfast and dinner, but we're not necessarily married for lunch. Now we are, and we're experiencing what that life actually looks like.

Benz: So, your point is to take notes if you're going through this as someone who is still working but maybe thinking about retirement. Think about what are some of the takeaways that you might be able to bring into your own retirement and maybe make some corrections if you can?

Finke: I'm an economist. I never really gave a whole lot of thought to things like marriage counseling and having a third-party that can help mediate some of these potential relationship issues. But I'm the believer now because I think that any of those cracks that were relatively modest during your working years are probably going to get broader, and it's better to come to an understanding before you retire about what some of those relationship obligations are?

Benz: Really interesting points, Michael. Thank you so much for being here.

Finke: My pleasure, Christine.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.