Happier with a smaller income?

I am approaching the stage in my life when I need to plan for my retirement. So recently I talked to my financial advisor Jason at TIAA (Teachers Insurance and Annuity Association), which is a very large retirement fund for people working in academic, research, and medical fields. TIAA will provide me with a big chunk of my retirement income.

My homework for this meeting was to estimate what my income needs in retirement will be. I was quite surprised myself that the amount was not very high, and expected a big surprise on Jason’s face. What I got was a big smile of a man whose predictions were fully confirmed. “You are a typical happy professor”, he exclaimed. And then he offered an observation he has made over the years of providing retirement planning advice: about income, consumption, standard of living and happiness. In his work he sees two kinds of professors: those with modest incomes, employed at liberal arts colleges and universities, and those with high incomes, employed at medical schools. By far the modest earners have more secure and happier retirement than the high earners. Throughout their careers the modest earners save a larger part of their income and then transition into retirement without a significant reduction in income or changes in lifestyles. What makes them happy and fulfilled does not require large income: friends, intellectual life, family, books, outdoors, arts, good health, and financial security.

In contrast, Jason noted, the high earners are poorer savers throughout their lives. They have lifestyles that, to maintain unchanged in retirement, require a very large nest egg, greater than many of them have accrued. For theses professors, retirement means giving up some of the basic lifestyle features that define them: large multiple houses with expensive upkeep, ski lodges in Colorado, and summer house on the beach, friendships and a social life of high spending, and so on. Never mind what one can objectively say about the necessity of these lifestyle features: when it is your baseline and you have to give it up it can be a real and painful loss.

In other words, Jason’s experience is entirely consistent with the happiness and well-being studies.

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