Happy Retirees? Maybe Not Why Life Satisfaction Isn’t Necessarily ‘U-Shaped’ After All

Happiness, experts say, is U-shaped: generally speaking, we are happy/full of life satisfaction as young adults but, as we reach middle age, we become less satisfied, with a trough in one’s early 50s; from this trough we rebound to ever-increasing satisfaction levels as we age. It’s remarkable, really, considering the physical infirmities we face, plus financial worries, loss of loved ones, and more. What explains this? We become wiser and we are able to see all of life’s ups and downs with a greater sense of perspective.

But what if that’s not true?

A new working paper by Peter Hudomiet, Michael D. Hurd and Susann Rohwedder, researchers at RAND Corporation, suggests an entirely different answer: older individuals have greater life satisfaction because the less-satisfied folk have been weeded-out. And by “weeded-out” I mean that they’re dead or otherwise unable to reply, because the likelihood of dying is greater for those who have less life satisfaction. When they apply calculations to try to strip out this impact, the effect is dramatic: rather than life satisfaction climbing steadily from the mid-50s to early 70s, then remaining steady, they see a steady drop from the early 70s as people age.

Here are the three key graphs (used with permission):

First, life satisfaction plotted by age without any special adjustments:

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Life satisfaction by age, unadjusted
Life satisfaction by age, unadjusted used with permission

Second, the difference in mortality between the satisfied and the unsatisfied:

Mortality by age and life satisfaction
Mortality by age and life satisfaction used with permission

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And, third, the same life satisfaction graph, adjusted to take into account the impact of the disproportionality of deaths:

Life satisfaction adjusted for death rates
Life satisfaction adjusted for death rates used with permission

In this graph, the blue line represents the unadjusted outputs from their calculations, the orange line is smoothed, and the grey line adds in demographic, labor market and health controls, to strip out the impact of, for example, people in poor health being less satisfied and try to isolate the impact solely of age.

Here are the details on this calculation.

The data they use for their analysis comes from the Health and Retirement Study (HRS), a long-running survey of individuals age 51 and older at the University of Michigan, sponsored by the National Institute on Aging. It is a longitudinal study; that is, it surveys the same group of people every two years in order to see how their responses change over time, adding in new “refresher cohorts” to keep the survey going. The survey asks about many topics, including income, health, housing, and the like, and in 2008, the survey also began to ask life satisfaction, on a scale of 1 to 5 (”not at all satisfied” to “completely satisfied”).

One simple way of analyzing the data is to look at how life satisfaction ratings vary based on survey participants’ characteristics. The average reported life satisfaction of those between ages 65 – 74 is 3.91, just slightly below “4 – very satisfied.” But those who rate their health as “poor” average out to 3.13, or not much more than “3 – somewhat satisfied,” and those who rate their health as “excellent” average to 4.34. Those who have 2 or more ADL (activities of daily living) limitations some out to an average of 3.32 vs. 3.97 for those with no such limits. Those who are in the poorest quarter of the survey group come out to 3.7 vs. 4.07 for the wealthiest quarter. (See the bottom of this article for the full table; this table and the following graphs are used with permission.)

But here’s the statistic that throws a monkey-wrench into the data:

“On average, the 2-year mortality rate [that is, from one survey round to the next] is 4.4% among those who are very or completely satisfied with their lives, while it is 7.3% (or 66% higher) among those who are not or somewhat satisfied with their lives.”

As a result, “those who are more satisfied with their lives live longer and make up a larger fraction of the sample at older ages.”

Now, this does not say that being pessimistic about one’s life causes one to be more likely to die. Nor does it say that this pessimism is justified by being in ill-health and at risk of dying. But this statistical connection, as well as further analysis of survey drop-outs for other reasons (such as dementia) is the basis for a regression analysis which results in the graph above.

What’s more, the original “inventor” of the concept of the life satisfaction curve, David Blanchflower, published a follow-up study just after this one. One of their key concepts is the notion of using “controls” to try to identify changes in life satisfaction solely due to age rather than changes in income over one’s lifetime, for example, or other factors, and there has been extensive debate about whether or to what degree this is appropriate, given that the reality of any individual’s life experience is that one does experience changes in marital and family status, employment status, and the like.

Having received pushback for this concept, they defend it but also insist that the U-shape holds regardless of whether “controls” are used or not. At the same time, Blanchflower is quite insistent that the “U” is universal across cultures, though (see my prior article on the topic) it really seems to require quite some effort to make this U appear outside the Anglosphere, which is all the more interesting in light of the John Henrich “WEIRDest people” contention (see my October article) that various traits that had been viewed by psychologists as universally-generalizable are really quite distinctive to Western cultures and, more distinctively, the United States.

But here’s the fundamental question: why does it matter?

On an individual level, to believe that there is a trough and a rebound offers hope for those stuck in a midlife rut. It’s a form of self-help, the adult version of the “it gets better” campaign for teenagers.

On a societal level, the recognition of a drop in life satisfaction for the middle-aged might be explained, by someone with the perspective of the upper-middle class, as the result of dissatisfaction with a stagnating career, failure to achieve the corner office, the challenge of shepherding kids into college, and the like. In fact, when I wrote about the topic two years ago, that’s how the material I read generally presented the issue.

But Blanchflower’s new paper recognizes greater stakes: “These dips in well-being are associated with higher levels of depression, including chronic depression, difficulty sleeping, and even suicide. In the U.S., deaths of despair are most likely to occur in the middle-aged years, and the patterns are robustly associated with unhappiness and stress. Across countries chronic depression and suicide rates peak in midlife.” (In the United States, among men, this is not true; men over 75 have the highest suicide rate.)

And what of the decline in life satisfaction among the elderly?

The premise that the elderly become increasingly satisfied with their lives as they age is a very appealing one, not just because it provides hope for us individually as we age. It serves as confirmation of a more fundamental belief, that the elderly are a source of wisdom and perspective on life. Although it is Asian cultures which are particularly known for veneration of the elderly, the importance of caring for those in need is just as much a moral imperative in Western societies, even if without the same sense of “veneration” or of valuing them to a greater degree than others in need.

Consider, after all, that the evening news likes to feature stories of oldsters running marathons or competing in triathlons or even just having a sunny outlook on life; no one likes to think of the grumpy grandmother or grandmother from one’s childhood as representative of “old age.” In this respect, “old folks are more satisfied with life” provided an easy to make the elderly more “venerable.” Hudomiet’s research might force us to think a bit harder.

As always, you’re invited to comment at JaneTheActuary.com!

Full table of impact of demographic characteristics on life satisfaction:

Impact of demographic characteristics on life satisfaction
Impact of demographic characteristics on life satisfaction used with permission

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Elizabeth Bauer

Elizabeth Bauer

Yes, I’m a nerd, and an actuary to boot. Armed with an M.A. in medieval history and the F.S.A. actuarial credential, with 20 years of experience at a major benefits consulting firm, and having blogged as “Jane the Actuary” since 2013, I enjoy reading and writing about retirement issues, including retirement income adequacy, reform proposals and international comparisons.



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FIRE Financial Strategies:How Much is Too Extreme When Saving for Retirement


It’s not just the younger generations that are failing at retirement planning in Europe, the U.S., and elsewhere;  older generations are equally in trouble. Saving for retirement may be difficult right now for those who’ve been effected by the global health crisis, or more generally for those with sizable debt. But there is a growing segment of the population that’s gearing itself, or at least the possibility, to retire in their 40s.

How is it possible for someone to retire in their 40s when so many people are struggling with retirement savings? One answer is the FIRE movement.

FIRE explained.

FIRE stands for financial independence and retiring early. The movement inspires people to live a conservative life to achieve early retirement and financial freedom. The primary intent behind the campaign is to help people escape the dogma of routine work life, financial strain, and worries by following a series of predefined steps.

It’s a lifestyle optimization movement that prioritizes living under your means while saving a significant part of your income for the future. Some may even call it a glorified financial goal that includes smart investing and spending choices.

The most straightforward formula is to save up to 25 times your annual expenses, so if you earn $100,000 and can survive on $45,000, your goal should be to save $1.125 million to become financially independent. Once you reach this goal, you can start distributing 4 percent of the entire savings fund annually, adjusted for inflation only.

If that sounds difficult, let’s divide it into simple, actionable steps.

Eliminate high-interest debt. The first step is to eliminate any kind of high-interest debt. It includes credit card debt, personal loans, and even student debt. The reason for doing so is that interest payments eat away your savings, thereby prohibiting long-term accumulation of capital gains.

You can choose among a variety of techniques to pay off debt, including the avalanche method, snowball method, or similar strategies.

However, if you’re using a low-interest debt, such as mortgage loans, to boost your income or generate rental money, you can keep that loan.


Reduce your expenses. The FIRE strategy is designed across the principles of conservative spending. Optimize your lifestyle for minimum costs and let go of an inflationary lifestyle.

Here is what you can do:

  • List all your necessities, such as rent, grocery payments, essential utilities, and internet connection.
  • Create a list of all the lifestyle expenses, or wants, desires, such as eating out, watching movies, takeaways, streaming subscriptions, cable TV, etc.
  • You have to cut most of your expenses from the second list, inflationary expenses, to boost your savings. Start slowly and gradually move towards eliminating these costs.

Find ways to boost your income. The FIRE strategy requires you to maximize your savings for a set number of years, which means you have to find different ways to increase your income. This might be more difficult lately as a result of the health crisis, but its what’s necessary for the big picture.

Are you able to take on an additional project? Can you take a part-time job? Is it possible to generate extra income through part-time freelancing? Boosting your income allows you to reach your financial goals sooner than planned.

Maximize your savings rate. Having a high savings rate is essential for the entire strategy to work. By minimizing your expenses and boosting your income, you should be able to achieve a high savings rate. People covered under the stories we cited earlier in the post achieved a savings rate of 50 percent or even higher, but that’s not necessary for the FIRE strategy to work.

Calculate your own figures and target a savings rate accordingly.

Invest in tax-advantaged accounts. Always try and invest in tax-advantaged accounts to minimize your taxable income. Start by maxing out your retirement plans, and if you have freelance income or an opportunity to contribute more, do it.

Also, take the maximum benefit of alternative saving options such as a health savings account or flexible spending account offered by your employer.

Invest money for regular income. Investments made under the FIRE strategy follow a conservative approach, which means investing in low-cost financial instruments instead of trying complicated investment techniques.

However, it is critical for your money to beat inflation for this strategy to work. Pay special attention to your asset allocation. If you aren’t confident about your investment allocations, feel free to contact an expert for a custom investment solution. Some successful FIRE strategy followers even recommend adding real estate to the investment portfolio, providing consistent rental income.

Following these steps religiously can allow you to achieve financial freedom sooner than traditional retirement. You no longer have to work to pay for your necessities. You’re free to pursue the dreams that you wanted to follow before starting this journey.

Unlike popular belief, you don’t have to retire or quit your job. You simply have the financial freedom to do so at any time you want. Similarly, you can start working on a hobby that offers both satisfaction as well as income.

The problems with FIRE strategy.

Yes, the measures defined by the FIRE strategy can be extreme for most people. That said, FIRE isn’t for everyone. Here are some of the obvious drawbacks:

  • Not a realistic strategy for people who have considerable debt: The ability to save considerable amounts of money can be impossible for those who have sizable household debt.
  • Requires drastic lifestyle changes: Frugality and minimalistic lifestyle are critical for FIRE strategy to work. Several people will find it difficult to adjust to these new changes.
  • There’s financial risk: In the case of a market crash or loss of your investment capital, you’re under a massive financial threat. There are examples of people who were able to achieve financial freedom only to lose a significant portion of their investments during downward market cycles.
  • It involves financial uncertainty: Not everyone has the financial skills to plan for years of expenses, especially emergency costs or unexpected medical, maintenance bills. A high level of financial uncertainty could be a problem for families relying on consistent income.

Taking a hybrid approach to financial freedom.

Now that you have seen the cons of FIRE strategy, do you still want to follow it or give it all up? Well, you don’t have to do either, as there are multiple variants of the FIRE strategy that might suit you better.

  • Lean FIRE: This is the basic FIRE strategy, which is contingent on you making substantial lifestyle changes and lowering your annual expenses. There is a possibility that you may have to relocate to a low tax, cheaper state to achieve, sustain financial freedom.
  • Fat FIRE: This variant of FIRE is built around providing financial independence to an individual or family without making significant changes in their current lifestyle. Fat FIRE strategy takes comparatively longer to execute but follows the same steps as that of a lean FIRE strategy.
    • Example of Fat Fire: If a family is comfortable with a lifestyle that costs around $70,000 annually, they need to save $1.75 million in their fund to continue withdrawing 4 percent annually.
  • Barista FIRE: Barista FIRE is somewhere between lean Fire and fat FIRE strategies, as it requires you to either have one of the spouses working full-time or part-time (depending on profession) through the rest of his or her life. Barista FIRE takes into account factors such as getting health coverage through your spouse or working enough to qualify for health coverage or similar benefits. Some companies would offer medical coverage to employees working 20 hours or more.

To keep it simple, Barista FIRE might be the most ideal out of these variants. Let’s find out a little more about this strategy.

You enjoy a semi-retired lifestyle. You only have to work part-time, giving you ample time to relax, spend time with your family, and pursue any interests. It’s the best of both worlds.

Portia Antonia Alexis


Source: https://www.entrepreneur.com



Saving for retirement is a race against time. You need to max out your contributions while you are young and use the power of compound interest in your favor. The goal is to have 10 times your annual salary saved up before you retire, according to Fidelity. Watch this video to find out what milestones you need to reach to get to your goal.
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