The Curve Ahead: What the Science Says About Aging, Happiness and Spending

Let's revisit some research from Transamerica and insights from Mo Wang at the University of Florida, which reveal that only 5% of retirees experience a significant increase in happiness upon retiring. In fact, 20-25% may even see a decrease in their happiness, particularly if they leave a job that provided them with meaning and identity. This sets the stage for our exploration of the U-bend of happiness—a surprising pattern that shows how life satisfaction tends to follow a U-shaped curve throughout our lives, and the retirement income smile.

As we navigate through our 20s and early 30s, we often feel high levels of happiness, but this dips during midlife, typically in our 40s and early 50s, where many report feeling unfulfilled and stressed. This is the U-bend of happiness. However, the good news is that happiness levels tend to rise again in our 60s, 70s, and even 80s. This midlife slump is a common experience and not a permanent state.

Next, let's discuss the retirement income smile, a concept introduced by financial planner David Blanchett. Contrary to the traditional view that retirement spending remains flat, spending actually follows a curve—starting high, dipping in the middle, and rising again towards the end of retirement. This pattern is crucial for understanding how to manage your finances effectively in retirement.

There are three distinct phases of retirement spending (again using Blanchett's terminology): the go-go years, the slow-go years, and the no-go years. In the go-go years, retirees are active and spend more on travel and leisure. As they transition into the slow-go years, spending decreases as lifestyles slow down, but healthcare costs begin to rise in the no-go years, often offsetting the savings from reduced discretionary spending.

Now, for some practical advice on how to plan for these spending phases. First, I encourage readers to segment their retirement budgets by phase, next, to consider their health and longevity, and finally, to review their portfolios to ensure they can draw more in the early years while maintaining security later in life. I also want to stress the importance of consulting with a financial planner to tailor a strategy that aligns with the unique shape of your retirement smile.

In conclusion, remember that retirement is not a flat road but a journey filled with peaks and valleys. By understanding the U-bend of happiness and the retirement income smile, you can create a fulfilling and financially secure retirement.

Thank you for tuning in! If you found this episode helpful, please share it with friends and family who are planning for retirement. Don't forget to subscribe to our podcast on Spotify or Apple, and visit our website at happinessinretirement.com for more resources. Until next time, remember that the road to retirement should be an adventure, not a survival strategy!