A Simple Formula That Predicts How Happy You Will Be in Retirement

Hundred dollar bills

Most people believe financial independence and having a boatload of money in an account will lead to ultimate happiness. According to William Bernstein, a neurologist and co-founder of investment management firm Efficient Frontier Advisors, having a good idea of how you’ll spend those post-work years (not necessarily how much you have) is critical to how happy you’ll be. As he says in the Wall Street Journal, “‘Golf’ is not a plan.” Here is a simple equation to predict how happy you will be in retirement:

(How Much You Dislike Your Job) x (How Much You Want to Do Something Else) = Retirement Happiness

In his opinion, you need both factors in order to be a happy retiree. If you love your job, then the first value in the equation is zero. If you can’t wait to leave it, the value goes up. The second value is based on if you know what you want to do after you retire. If you have a goal to pursue in retirement, the value goes up! But if you haven’t figure out what you want to do, the value goes down. 

It is important to have enough to be financially independent, where you can maintain a standard of living and lifestyle without having to work, so you are not struggling to pay the bills. But after a certain amount of money in the bank, there is a diminishing return, or decreasing happiness per extra dollar you earn once you are financially independent (FYI, according to studies it’s $75,000 in the US). After you hit that amount, the equation is a good indicator of how happy you will be. 

The bottom line is that how happy you will be in retirement is more than just how much money you have, it is based on fulfillment in pursuing your purpose, goals, and how well you can adapt to change. 

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