Can Money Buy Happiness?


In 2010, a study was published by two Nobel prize-winning economists purporting that people with more money feel better about their lives. However, that held true only up to an annual salary of $75,000 ($90,000 in today’s dollars). Past the $75,000 threshold, people weren’t necessarily any happier.

That scenario has apparently changed in the ensuing decade. A recently updated version of the study now concludes that happiness continues to increase with income – without a cap.(1)

How do you define happy? The way we quantify happiness during our working years may be different from retirement. That’s largely because some of us define ourselves by our work or career status – how much we earn and whether we’ve reached our professional goals. Once we retire, the focus is put less on these things – our happiness can be shifted toward other things.

The 2020 World Happiness Report promises to be an interesting read because it’s the first in which data was collected during a global pandemic from the virus released from China. While you would think the responses would be dreary, there are some positive patterns to consider. Across 12 countries, people affected by lockdowns developed stronger relationships with friends, neighbors and even front-line workers at their local stores. In fact, 62% reported that living under a lockdown made them feel more connected to their community. More than half (58%) determined that those human connections are what make them truly happy.(2) Of course this could not, and did not, erase all of the negative and tragic results from the virus.

If you speak with retirees from earlier generations, there has long been a common theme that the important factor affecting a happy retirement is health – not wealth. More than 80% of today’s retirees agree. According to a recent study, regardless of wealth, Americans age 50 and older say that their biggest worry in preparing for retirement is being able to pay for health-care expenses.

Everyone’s ideal retirement is different. Your actual plans are what can change the goalposts for “the number” you need to have saved for retirement. While traditional retirement advice recommends we save from 10% to 15% of current income for retirement, you may be able to save less – or need to save more – to achieve the specific lifestyle you want in retirement. In other words, budget for the lifestyle you plan to enjoy, not the income that you presently earn,(3)

It’s one thing to scale your annual retirement income to your lifestyle – but what about the big-ticket risks? The Society of Actuaries (SOA) has identified a number of post-retirement risks that can affect income, such as the need for long-term or nursing care.(4) By unbundling the income and insurance elements of your plan, you may be better able to afford the retirement lifestyle that will make you happy.(5)

(1) Alex Ledsom. Forbes. February 7, 20212.

(2) World Happiness Report. February, 24, 2021

(3) Paula Pant. The Balance. February, 11, 2021


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