What Science Reveals About Money and a Happy Retirement

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You’ve worked hard, saved diligently and invested wisely throughout your career, building a tidy nest egg — the perfect recipe for a happy retirement.

Or is it? Science says not so fast.

A growing body of research from academics, social scientists, and financial services providers is shedding light on what it takes to be truly happy in retirement — and what behaviors and circumstances detract from that happiness. As it turns out, while money is certainly an important factor, the studies paint a more nuanced picture of the role your finances play in a satisfying retirement and what other ingredients matter as much or more to achieve lasting happiness in your life after you leave the workforce behind.

For one thing, researchers say, how much you’ve saved may be less important to your happiness than the form your income comes in and how you spend what you’ve got, whatever the amount is. And money alone won’t cut it in the happiness department. Your social connections, physical well-being and sense of purpose matter as much or more than the cold, hard cash you’ve socked away.

“While money does tend to make people happier, it’s really the combination of money, relationships and health that drives a satisfying retirement,” says Michael Finke, a professor of wealth management at the American College of Financial Services and a leading researcher in the field. “If you have a lot of money but don’t have the relationships, it doesn’t necessarily make you happy. You have to be able to recognize that all of these factors are investments, and build them, to achieve true satisfaction in your life after work.”

The good news, according to science? The key to being genuinely happy once you leave the workforce behind is well within your grasp.

All it takes is understanding the forces that drive well-being and adapting your retirement planning and behavior accordingly. Here are the five most important insights that research provides and the steps you should consider taking as a result.

More money makes you happier — but only up to a point.

Can money buy happiness? That question has befuddled researchers, philosophers and regular humans for decades, both generally and in regard to retirement specifically.

Some studies have found little correlation between retirement satisfaction and net worth or income once you have enough to cover your basic needs. Others suggest that having more in savings is linked to greater happiness, but that the increase is fairly modest and plateaus once you reach a certain level of wealth.

Finke, for one, found a lofty “inflection point,” as he calls it, of $4 million in savings. Studying responses from the University of Michigan Health and Retirement Study (HRS), a long-running survey of about 20,000 Americans over age 50 that is used by many researchers, Finke found that measures of satisfaction among retirees rose until they had amassed that amount, then leveled off.

“It’s not as if having $3 million made you that much less happy, but that any growth stopped at that point,” Finke says.

Other research suggests a lower peak-happiness threshold for savings. In a nationally representative survey of 1,200 retirees for his upcoming book, The Retire Sooner Method, certified financial planner Wes Moss, who is the chief investment strategist at Capital Investment Advisors in Atlanta, found a big jump in happiness — 11 percentage points above the national average — among people with at least $1 million in savings. Retirees with liquid assets between $500,000 and $999,999 were 6 points happier than average, and those with $3 million or more were 16 points happier, at which point satisfaction then stabilized.

Moss found a similar pattern for income. Retirees making $50,000 to $99,999 expressed levels of happiness in line with the national average, while those bringing in $100,000 or more were well above that mark.

Overall, the body of research shows that increases in happiness from one level of income and wealth to the next are relatively small. Analyzing multiple surveys of retirement well-being, researchers from the Center for Retirement Research (CRR) at Boston College found that each $10,000 boost in annual income increased feelings of financial well-being by only 0.01 to 0.05 points on a 10-point scale, while a $1 million increase in wealth was associated with a 0.3- to 0.8-point increase in financial satisfaction.

“A ton more money doesn’t necessarily mean a ton more happiness,” Moss says. “It’s about building a financial foundation that gives you options and peace of mind.”

Your best moves: One finding that has puzzled many researchers is the large percentage of retirees — from upwards of 60% to more than 90%, depending on the survey — who say they are happy, no matter what their income or wealth is.

In fact, financial anxiety seems to subside substantially once you stop working, according to a 2024 MassMutual study of retirement happiness, with worries about not having enough money dropping from 43% among preretirees to just 14% among retirees.

One key seems to be the ability to adapt to your circumstances. Among the moves that retirees were taking to accommodate their changed finances in retirement, according to MassMutual, were spending less (52%), followed by creating a budget, adjusting for inflation in their retirement income plans and building an emergency fund.

“Your ability to make choices and consider the trade-offs is critical to your satisfaction in retirement—do you take that trip, eat out more or less, help a family member or not,” says Vaughn Bowman, head of wealth management at MassMutual. “It’s not about deprivation but about being able to prioritize the things that matter the most to you.”

How you get your money is more important than the amount.

If you get most of your spending money in retirement from guaranteed sources of income — say, Social Security combined with a pension or annuity — chances are you’re a lot happier than your peers who have to withdraw money from savings to help pay the bills. That’s the conclusion of multiple studies, which show that happiness in retirement is strongly linked to the form in which your income comes to you.

Using HRS data, for example, a Rand Corporation study found that retirees who get a regular income stream from annuities were 43% more likely to consider themselves “very satisfied” 10 years into their retirement than were retirees without annuitized income.

And the pattern held when researchers controlled for wealth — the study found that middle-income retirees with annuitized income were more satisfied with their lives than higher-income peers who relied primarily on savings.

One reason may be that having a steady source of income gives you confidence that your money will last as long as you need, so you’re more willing to spend on the pursuits that bring you joy, says Finke, who has conducted several studies on this phenomenon with research partners.

One study looked at spending by retirees who have a pension or other guaranteed income source of about $3,000 a month, compared with those who don’t have a guaranteed income but have saved enough to comfortably withdraw $3,000 a month from their investments. The upshot: People who relied on their savings spent only about half as much as those with a guaranteed income source.

Another study asked retirees which option would make them feel better about spending money on a vacation or dinner out with friends: getting an extra $1,000 a month in guaranteed income a year, or getting a lump sum of $140,000, which is roughly the amount needed to buy an annuity that would generate that monthly income. About 60% of the respondents opted for the monthly payout.

Your best moves: Delaying Social Security is the simplest way to boost guaranteed income. Waiting to claim until your full retirement age avoids the reduction in benefits that early takers experience, while each year you hold off beyond that point increases your benefits by 8% a year up until you reach age 70. All told, your monthly payments will be 76% higher if you wait until you’re 70 to collect than if you claim at 62.

You might also consider converting a portion of your portfolio to an annuity, Finke suggests. Investing $500,000 or so in an immediate annuity, he estimates, might yield about $30,000 a year in lifetime income (for quotes and terms, go to immediateannuities.com). For a retiree who made $100,000 a year before retirement and might now be spending $60,000 to $65,000 a year, that, combined with Social Security, might come pretty close to replicating the lifestyle you used to have, with a bit of a buffer for any emergency expense that might pop up, Finke calculates.

He notes that with your basic needs covered, you might then be able to be a little more aggressive in investing the rest of your portfolio, with an eye to greater future growth. That might be particularly appealing to retirees eager to leave an inheritance for children, grandchildren, or other loved ones and cherished causes.

Having a formal road map for retirement makes you happier.

The initial transition to retirement is often rockier than people anticipate, says Robert Laura, founder and CEO of the Retirement Coaches Association and CEO of the Wealth & Wellness Group, an investment advisory firm in Brighton, Mich. He says, “People go in with glossy eyes and sometimes unrealistic expectations, and they can get smacked pretty hard if they haven’t planned ahead.”

Most difficult, Laura’s research shows, is the loss of identity and lack of a daily routine people experience after leaving a full-time job. In a 2023 study of 1,000 preretirees and retirees, those were the most common reasons people struggled after retiring. Financial difficulties, cited by just 10% of respondents, were a distant sixth on the list.

Those feelings can be exacerbated if, as often happens, you’re forced into retirement sooner than expected by poor health or a layoff. Multiple studies show that retirees who quit voluntarily are happier than those who were forced out of their jobs.

The connective tissue through all of these findings is the feeling that you lack control over what happens in your life now. What helps, various studies show, is having a formal, written plan that maps out how much you can safely spend from your investments, how those assets should be allocated and, critically, how you will fill your time.

Moss’s study finds that happy retirees are twice as likely to have a formal written financial plan compared with unhappy retirees. The Rand study also found that satisfaction with retirement is higher among retirees who have engaged or are currently engaged in some sort of financial planning activity, such as attending a retirement planning meeting or having a financial adviser.

Your best moves: Whether you work with a financial adviser or retirement coach or manage the process on your own, experts say it’s important to create a formal written plan for managing your money in retirement. You particularly want to get a handle on spending, Bowman says.

Most people end up spending about 70% of what they were spending while they were working, but the pattern changes over the course of retirement, with heavier spending early in retirement that then typically tapers off. You also want to consider big life moments, such as whether you’ll be paying for a child’s wedding, downsizing your home, or relocating.

“Having a plan, even if every detail of that plan doesn’t come to pass, gives you a measure of predictability, which gives you peace of mind,” Bowman says.

Critically, says Laura, you also should map out how you will spend your time and how you will replace the positive emotions you got from working—the sense of accomplishment, engagement, purpose and structure. “Golf, travel, grandkids, crossword puzzles and knitting only go so far,” he says.

One exercise he recommends is to make a list of 10 or so things you’re curious about, then search online to find related groups you can participate in.

Says Laura, “The overarching goal is to think about what every day is going to look like, create levels of routine and structure that get you out of the house and keep you active, then commit that plan to paper, which increases the likelihood you’ll follow through.”

Debt is the ultimate buzzkill for retirement happiness.

In recent years, carrying debt into retirement has become more common, even among higher-income households. A 2024 study by the Employee Benefit Research Institute found that the percentage of American families headed by someone 55 or older with debt had risen to 67% by 2022, up from 54% in 1992. Upper-income families were actually more likely to have debt than lower-income households, with the most affluent 25% of older households with debt owing about $230,000 on average.

And that can lead to some mighty unhappy retirees. The CRR research found, for example, that on a scale of one to 10, households were a full point less satisfied with their financial lives for every $100,000 in non-mortgage debt they owed.

Obviously, having debt leaves you with less money to spend on the things that bring you pleasure in retirement, from travel to hobbies. But the emotional fallout goes beyond dollars and cents. Studies show that debt at any age is associated with greater levels of anxiety and depression, which in turn are linked to a variety of physical ailments, from arthritis to heart disease.

“Of all the financial factors we looked at, debt, and non-mortgage debt in particular, had the greatest impact on retirement happiness — in this case, in a negative way,” says Anqi Chen, associate director of savings and household finance at the Center for Retirement Research and a coauthor of the study.

Your best moves: Erasing debt before you retire has a big payoff — financially, by freeing up funds to help you boost savings before you stop working and increasing your disposable income afterward, and emotionally, by reducing the anxiety that debt causes.

Both, in turn, make for happier retirees. More than six in 10 respondents in the MassMutual study who reported being much happier in retirement than when they were working had taken steps to pay off debt before leaving the workforce, compared with less than half of those who were not happier.

“If you have non-mortgage debt, your top goal should be to pay it off — before you retire, if possible, or as soon after as you can,” says Chen. “It’s also important to build emergency savings so you have a cash buffer for unexpected expenses, which are often the reason people get into debt in the first place.”

While credit cards, medical debt and other non-mortgage debt have a more detrimental effect on happiness than a mortgage, paying off the house does help. Moss’s research shows that retirees who don’t have a mortgage or are less than 10 years away from paying it off are more likely to say they’re happy than homeowners with a longer way to go.

Your relationships — and your health — matter most of all.

Tracking the lives of more than 700 Boston-area men (and later, their wives and children), through surveys, brain scans, DNA analysis and interviews, the researchers documented the positive impact of close human connections on mental and physical health and found it to have the strongest correlation with happiness. Many other studies back up the importance of relationships—with your romantic partner, your friends, your children and your community — specifically to being happy in retirement.

Spending time with loved ones, for instance, was the top activity, cited by 76% of respondents, among people who are much happier in retirement than they were while they were working, the MassMutual survey found. Moss’s study similarly asked retirees what brought them the most joy in retirement and found that nearly all of the answers, no matter what the specific pursuit was, involved socializing with other people.

In one of his studies, Finke looked at various spending categories for retirees and found that “social spending” — eating out with friends or taking a vacation with your spouse — had the highest correlation with life satisfaction.

If you’re married, the most critical relationship will be with your partner, followed by your connections with friends, Finke found. “The importance of the spousal relationship is amplified when you spend all day together,” he says. “If it’s good, you’re going to be happier. If it’s bad, you’re going to be unhappier.”

Your relationship with your children is more complicated. Finke’s research shows no correlation with retirement happiness. “It doesn’t make you happy, it doesn’t make you unhappy. It’s just not statistically significant,” he says.

On the other hand, one study by Moss did show a big happiness bump among retirees who live within a comfortable driving distance of at least half of their children. However, he also found that having to help support your kids financially was a drag on well-being, with unhappy retirees spending 40% more per month on their children than happy ones.

“It leaves you with less money for the things you enjoy, exacerbates the fear of running out of money and, on the human side, you’re worried about your kid — and worry really eats away at happiness,” he says.

Next to relationships, health is the best predictor of retirement happiness. That makes sense, of course, because it’s tough to feel good about how your life is going if you’re physically ailing, especially if that limits your ability for social engagement and activities that fuel joy.

In Finke’s studies, for instance, retirees who rated their health as good or excellent had a satisfaction rating 58% higher than those who said their health was poor. Similarly, the Rand study found that people who say they’re in excellent or very good health are much more likely to find retirement very satisfying than those who describe their health as fair or poor—findings also echoed by the CRR analysis of retirement happiness research.

Your best moves: Whether you’re still in the planning stages or are already retired, it’s important to view your relationships and your health as investments, just as you do with your money — and put time and effort into making them flourish.

“People often put friends and family on the back burner when they’re working, thinking they’ll have time to nurture those relationships once they retire, only to find those relationships have withered,” says Laura. “You have to put the time in to build them now.”

“The best way to think about living well in retirement is that those who invest well are going to get a bigger payout, and the biggest investments you can make are in your relationships and your health,” says Finke. “Money matters too, but especially if you use it to fuel the other two and understand you need all three elements to really be happy.”

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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