Money Can’t Buy Happiness, But Protection Can

Money Can’t Buy Happiness, But Protection Can

It is a widely accepted belief that money cannot buy happiness, however recent research has suggested that higher incomes correlate to stronger levels of well-being, especially for retirees. Although the argument about whether money can buy happiness is up for debate, there are several identifiable factors that play a role in retirement security. A 2021 study conducted by Matthew A. Killingsworth, a Senior Fellow at the University of Pennsylvania’s Wharton School of Business indicated that there is a linear relationship between an individual’s level of income and their overall well-being. This study was a contrast to a 2010 study conducted by Nobel Prize winners Daniel Kahneman and Angus Deaton who argued that income does not always result in higher levels of happiness and tends to plateau once an individual earns $75,000 — thus after reaching this threshold, the well-being of an individual is not impacted by having more income. 

The difference between these two studies, as noted by Killingsworth, is the way each study measures happiness. Kahneman and Deaton measured happiness on a narrow scale, evaluating the metric by asking respondents to answer yes or no questions to reveal their level of happiness as compared to their income. Killingsworth, on the other hand, used a sliding scale to identify changes and fluctuations in respondents’ moods and emotions during the study which led to his findings that higher amounts of income do correlate to higher levels of happiness. The results of Killingsworth’s study substantiated the findings of Jean Twenge, a Psychology Professor from San Diego State University, who’s research corroborated the view that happiness increases along with the level of income and stated that well-being and happiness do not plateau after an individual earns $75,000. 

These studies recognize that having more income creates more opportunities to purchase goods and services that can have positive and negative impacts on that individual’s well-being. This is especially true for retirees who tend to require services such as long-term care and other healthcare related goods and services. In 2005, research from the Center for Retirement Research analyzed the impact of income and well-being for seniors and found that higher incomes did not translate to having stronger well-beings. The researchers did however note that having higher-income levels gains better access to goods and services that can improve well-being. Rather than income being a primary indicator of happiness, the Center for Retirement Research distinguished multiple factors that have more influence on the happiness and well-being of retirees. 

Multiple factors, including whether the respondent retired voluntarily or involuntarily, as well as health complications both have a non-controllable impact on happiness and well-being throughout retirement. The study showed that individuals who were forced to retire had lower levels of happiness in retirement than those who retired on their own accord, regardless of their level of income. Poor health was also cited as a factor that impacted the happiness and well-being of retirees. A retiree in poor health was likely to see their overall well-being decline, even if they had higher income. The researchers concede that having higher income would allow for a retiree in poor health to purchase goods and services that could impact their happiness and well-being, but no evidence was presented to show that income by itself was a determining factor for a retiree’s level of happiness. Instead, researchers discovered that having a retirement plan with a lifetime income annuity had a positive effect on the well-being of retirees compared to those who did not have a lifetime income product. This evidence suggests that it may not be the level of income that correlates to a retiree’s well-being, but instead the amount of income that is protected. 

A 2018 Guaranteed Lifetime Income Study acknowledged that having guaranteed income made for a less stressful and happier retirement among their respondents. The study analyzed individuals in and nearing retirement between the ages of 55 and 75 who all had at least $100,000 in savings. As a result, the respondents identified that having guaranteed lifetime income protected against outliving their savings and gave them peace of mind as they were able to more accurately budget and plan their finances through retirement. 

A similar study from 1998 to 2010 the University of Michigan used a Health and Retirement Study to survey 26,000 respondents over the age of 50 about several retirement issues and how they impacted their well-being. Their findings concluded that individuals living in or preparing for retirement were significantly more satisfied with their retirement if at least 30% of their investable assets were protected with lifetime income vehicles. On the topic of long-term care, these respondents were also more confident that they would be able to afford the expense of long-term care services should they be required. In essence, protecting assets with guaranteed lifetime income vehicles raised respondents’ confidence about their retirement — compared to those who did not have any assets protected — because they had less financial uncertainty. 

There are many factors at play when attempting to decipher whether money can buy happiness, especially for those in or near retirement. Certainly, as these studies have indicated, having more money allows for more flexibility to purchase goods and services that can be used to have a positive impact on one’s life and retirement. Uncontrolled variables, however, can have larger impacts on the well-being of a retiree or someone preparing for retirement than their level of income. With that in mind, the University of Michigan Study and the Guaranteed Lifetime Income Study make for an interesting third view. While there is evidence to suggest that money can and cannot buy happiness, it is verifiable that protecting one’s assets with guaranteed lifetime income vehicles increase the happiness of those in or near retirement.