• Daniel Crosby:
  • Bio
  • Books:
    • The Soul of Wealth (New!)
    • The Laws of Wealth
    • The Behavioral Investor
• Additional Research Mentioned:
  • Kahneman’s Original Research Paper on Money and Happiness (2010)
  • Kahneman’s Updated Research Paper on Money and Happiness (2023)

Why You Are (Probably) Planning for the Wrong Things in Retirement

Taylor Schulte: Welcome to the State Wealthy Podcast. I’m your host, Taylor Schulte, and today we’re talking about why we prep for the wrong things in retirement. Specifically, I’m joined by psychologist, behavioral finance expert, and New York Times bestselling author Dr. Daniel Crosby, to discuss three important things.

Number one, what our happiness is actually determined by number two, why contrary to popular research, more money can actually make us happier. And number three, what the PERMA model is and how we can use it to improve retirement success.

Daniel is the author of a new book, the Soul of Wealth, and I mean when I say it’s one of the best and most impactful personal finance books that I’ve read in years to show my support and appreciation and help get this good information into the hands of our listeners. I personally purchased 10 copies of this beautiful book to give away to claim your free copy.

As always, all I ask is that you leave an honest written review of this show in the Apple Podcast app. Take a screenshot and send it to podcast@youstaywealthy.com. That’s podcast@youstaywealthy.com. And if you would like to buy a copy of his book either for yourself or as a gift, I’ll be sure to provide a link to purchase it in today’s show notes.

Speaking of today’s show notes, to view the research and articles referenced throughout the episode, just head over to youstaywealthy.com/229.

Dr. Daniel Crosby, welcome to the show.

Daniel Crosby: Taylor, good to be with you man.

Taylor Schulte: Yeah, appreciate you coming back. I know you were on the show a number of years ago and we have a really good excuse to bring you back on. I mean, I wish you were on more often, but a really good excuse to bring you back on with a new book out. I’m really excited to talk to you today.

There’s a lot of great concepts that you cover in the new book, but here’s where I want to start. There was a very well-known study published in 2010 about this link between happiness and money, specifically how much annual income is needed to effectively purchase pleasure.
The research has concluded that money or income does buy happiness, but only up to a certain point. That point being about $75,000 per year. In other words, enough for our basic needs to be met. As you know, there’s more nuance to this study, but everyone’s big takeaway from this very famous study was that money does not buy happiness beyond $75,000 per year.

I’d like to actually start this conversation by asking you to share why this blanket statement is not true. Why and how can income well above $75,000 per year actually make us happier? And maybe a good place to start is by defining what happiness is and how we measure happiness.

Daniel Crosby: The chapter in my book that talks about this is money can kind of sort of buy you happiness sometimes if you spend it right. I think the name of the chapter is reflective of the research.

So the study in question was done by Danny Kahneman, who is the recently deceased, the preeminent granddaddy of behavioral finance and a revered researcher and Nobel Prize winner. Deaton and Kahneman were the ones who did this research for context that 75 would be about a hundred thousand dollars today.

So if we think about this, the way that they were measuring happiness, there’s no blood test for happiness, there’s no thermometer for happiness, and so it’s always necessarily going to be an abstraction.

And so what they did is they gave people pagers, beepers, and they would page them at random intervals and just say, Hey, how you doing? Think of a set of emojis answers from really terrible to really great.

And what they found is that yes, people who made more money tended to do better up to about what would today be a hundred thousand dollars a year and then it flatlined. But really what they were measuring there, if we think about it, was maybe less of what you and I would commonly refer to as happiness.

This sort of fulsome, holistic, joyful feeling. And it was more the absence of pain. What money does extremely well is buy you the absence of misery because if you make a hundred thousand dollars a year, you’re not hearing gunshots at night, you’re eating healthy food, your kids go to a nice school, probably you’re comfortable. But there’s more recent research into Kahneman’s credit.

He took the criticisms of his research in a very big way and even collaborated with this further research. And they found that if you measure happiness in a different way, if you measure it more subjectively or more qualitatively, which candidly is probably a little bit more like how we experience it, and you ask people to self-report, send you a sheet of paper and say, Hey Taylor, write me two paragraphs on how you’re doing, how’s your life?

What they found is that happiness was up into the right at every income level, at every increase in income, up to half a million dollars a year, which is where the study stopped. And so they found that basically the more money you made, the happier you were in terms of how you reported your life as being.

And that in fact, for about a third of people, that happiness dramatically accelerated past a hundred thousand dollars a year because that’s when you kind of got to the good stuff. That first hundred is what you needed for the food and the shelter and the insurance and the doctor visits the meat and potatoes of a pain-free life.

But after a hundred, that’s when you start to buy some cool clothes and go on some nice trips and go golfing and go on a nice vacation for about a third of people. Happiness actually accelerated past the level of a hundred thousand dollars, not flatlined.

And then this last piece I’ll talk about here is that for about 15% of people, they were impervious to the effects of money on happiness. So 15% of people just were kind of never happy, and I think we all just had an image of someone popping into our head.

We know someone for whom no amount of success and no amount of money is enough. And there’s this idea from the meditation and the mindfulness literature that wherever you go, there you are. I think that’s true of all of us broadly, and it’s certainly true of this 15% of people who just have a different problem, maybe they have bad genetics, genetics are highly implicated in happiness.

Maybe it’s bad luck, bad genes, maybe it’s tough life stuff, maybe it’s they need therapy, money’s not solving those problems. So that’s kind of the latest on the research. Money buys the absence of misery past a certain point for some people at flat lines and for some people it accelerates and for some people that just doesn’t do much.

So kind of sort of helps sometimes there’s a whole nother conversation to be had on how you spend it. But yeah, that’s kind of where we’re at these days. It’s not quite as cut and dried as money. Can’t buy happiness past a hundred grand a year though.

Taylor Schulte: Appreciate you sharing all that and you certainly go into more depth in the book. You mentioned genetics. One thing I was really struck by, you made this comment in the book that much of our happiness stems from things outside of wealth makes sense and also things outside of our control.

And you quoted some research saying that 50% of our happiness is determined by our genes, and some research suggests it could be closer to 70 or 80%, 70 or 80% of our happiness determined by our genes. Tell us more about that.

Daniel Crosby: It’s a tough thing to read. It’s a good news, bad news thing. So the genetic component, people have a set point for happiness, the way they have a set point for height and weight and a number of other physical characteristics.

And look, I’m 5’11”, there’s probably a world where I could be 6 feet tall if I had better nutrition and exercise at certain periods of my life, and there’s probably a world in which I’m 5’9” or 5’10” if I eat worse, but I was always going to be about 5’11”. And the same thing is true of happiness.

Roughly half of your happiness is attributable to your mom and your dad so wom, but that’s the bad news that potentially some of us get a little bit of a raw deal there. Genetically. The good news, and I think the surprising news to a lot of people is the remaining 50% isn’t allocated the way most people think.

It’s of the remaining 50%, 40% of your happiness is attributable to volitional stuff. Your choices, the decisions you make, your attitudes, your behaviors, your choices and only 10% is attributable to your circumstances. And I think in the popular imagination, those numbers are flipped.
Most people think your happiness will be as good or as bad as the circumstances you find yourselves in the cards that life deals you. It’s profoundly not the case. There’s all this research.

One of the most famous studies is on people who are in brutal accidents and become paraplegic or quadriplegic versus lottery winners and they find that when someone is in a horrible accident, understandably, there is a dramatic drop in happiness.

Initially you’re adjusting to life with limited mobility. You’re mourning the loss of some dreams you may have had and some notions of what the good life was. But then after about a year or so, you’re kind of back to your baseline and you’re just kind of where you ever were.

And they actually found the opposite thing is true of lottery winners. You win the lottery, there’s a period of celebration and great jumping up and down and joy for having won the lottery and then a year or two later you’re back to where you started. Part of that’s genetic and part of that’s volitional.
The bad news is about half of it’s out of our control. The good news is about half of it’s in our control and very little of it has to do with whether it’s raining or not, whether or not life is dealing you a lucky hand, a great deal of it has to do with choices that you make.

Taylor Schulte: As you know, a large percentage of our listeners are retirees or they’re close to retirement, very focused on retirement planning. So I’d be curious just to hear from you in general or even very specific, how listeners might factor in this research into their retirement planning.

How should they be thinking about this link between money and happiness and up to these certain thresholds and what it depends on and how it’s defined? What should they do with all this information? How should they factor it into their long-term retirement planning?

Daniel Crosby: That’s a great segue for me to talk about the happiness and spending money literature. There’s a few ways where the way that we decide to deploy our resources has a material impact on our happiness.

The first is giving it away. Being charitable, being philanthropic is highly rewarding and it does a great deal to bolster our happiness. And I’ve seen a lot of people in retirement have success when giving away money and pairing those financial contributions with their own service, their own labors, their own sweat of their brow so to speak.

And so I think pairing volunteerism with financial philanthropy is a powerful one, two punch for those in retirement. We also see that anything done to bolster relationships is very big. Taking trips, spending time with people that we love.

My mom is here as we speak. I just got done talking to my mom who drove four hours to see my kids for grandparents day and to spend too much money on them at the book fair go scholastic pairing Grandparents’ Day with the book fair.

Anything that’s done to bolster relationships is powerful. There’s a great example in the book for people who buy a car, let’s say Taylor, you buy a Ferrari that doesn’t buy you a lot of happiness in isolation, we quickly become habituated to it. It becomes kind of old news.

Maybe your wife hugs you a little tighter the first day or two, but she gets used to it over time. Your neighbors stop and drool the first time or two, but then they just get annoyed by you revving the V 12 in the front yard and we get habituated to it rather fast and the happiness dividend wears off rather quickly.

But if you buy that Ferrari to join the exotic car club of La Jolla, then it’s a very different thing because you bought yourself entree to a relationship and you can hang out with other folks who love cars and you can drink coffee and open your hoods and marvel at each other’s engines and that does buy a lot of happiness.

Anything that facilitates or deepens relationships is another one. Getting out of work we hate. This is one of my favorites. I don’t know if you can hear it, but there’s the distant were of a lawnmower that maybe you can hear right now that’s a high school kid knocking my yard out because I’m not going to do that ever again.

And I mean this actually buys us a lot of happiness is that we’re able to get out of doing work that we find distasteful. All of these things in retirement are things that we can do. We can give it away. We can buy our time back, we can get out of things we hate. We can deepen relationships. All of this is a fantastic way to spend money.

Taylor Schulte: We have our mutual friend Brian Portnoy joining me on the show in a few weeks here and we’re going to really dig deep into the psychology of spending and spending money in retirement. We all know this is a big challenge.

Whether you’ve saved a few hundred thousand dollars for retirement or you’ve saved millions of dollars for retirement, it often doesn’t really matter. It’s still really challenging to go and spend money on these things. Doesn’t need to be a Ferrari. It could be as simple as taking a trip with your family, this fear of running out of money.

I’ll dig deep with Brian Portnoy on the topic, but all these things, I think people are listening and saying, sure, I understand charitable give you to make me happy and spending money on things to join community and have more community and relationships in my life, buying my time back.

These things sound great on paper, they sound great in the textbooks, but in reality it’s not easy for me to write that check to charity or take that big vacation or buy that car I’ve always wanted because I still have this fear of running out of money. So any thoughts on how to combat some of those challenges?

And again, just knowing that we’ll dive deep with Brian here in a few weeks, but just any thoughts on overcoming that fear of spending money on these things that we know will likely make us happier?

Daniel Crosby: There’s a couple of chapters in the book that deal with this orthogonally. There’s a chapter in the book called Take the Worst Case Off the Table, and I talk in that chapter about the Hyundai Assurance program, which was this brilliant marketing program by the automaker during the great financial crisis where unemployment’s at 9%, but a hundred percent of people effectively are scared of losing their jobs, scared of adverse impact of the crisis on their job.

And so people were paralyzed in fear and were not certainly buying new cars. And so what Hyundai did is they said, look, if you buy a car from us and you lose your job, we will give you your money back. We’ll take the car back used and we will give you full freight. We will give you your money back. Hyundai went on to have one of the best quarters in their history.

They blew all their competitors out of the water because it’s such a powerful thing to take the worst case off the table, and I think that’s one of the things, people who are having a tough time, they’re fearful of drawing down this money that they’ve spent so much time and effort accumulating.

What you want to do is you want to take the worst case off the table sometimes that’s pay off the house, pay off the cars, get a safety bucket, get however much time you feel is necessary, six months to two years for a lot of folks, but get yourself a safety bucket of assets that helps you sleep well at night.
Get yourself a number that you’re not going to dip below because this is sort of the low watermark and what you need to get by figuring out what is the bare minimum, what do I need to take the worst case off the table and now let’s start to have a little fun past that with this, whatever the number is.

This is sort of my worst case that’s always going to remain safe. We’re not going to touch that, but beyond that, let’s have a little more flexibility with it. I think there’s a couple of other things that are maybe more the shrink in me has to bring this up.

I think some people’s self-worth is too tightly knit with their net worth and they have too closely conflated their wealth with their worth, and so when they see that number go down, they feel quite literally diminished in their own eyes or in the eyes of others, and that’s a bigger thorny or problem when we’ve too tightly wrapped those two ideas together.

The final thing I’ll steal and badly paraphrase Stephen Covey, but in his seminal work he talked about basically the only way to get past the no of fear is to have a yes burning inside of you.

If we’re going to get past the no, that voice in our head that says, no, don’t spend this money, we’ve got to be spending it on something. We’re so passionate about that, that no sort of melts away and maybe if the no is not melting away, maybe we need to fire up that passion a little bit more, find a new one.

Maybe it’s the grandkids or maybe it’s leaving a bequest or some sort of philanthropic legacy. It could be a hundred things, but when you find that thing that means more to you that the yes of that thing, that purpose means more to you than the know of that fear, I think that’s another powerful way to begin to approach that.

Taylor Schulte: Some really, really good ideas and concepts and solutions to combat this really challenging issue as people transition into retirement, start to lean on their savings and nest egg to do all the great and fun things that they want to do in retirement. Your comment about self-worth versus net worth is a really nice segue into the next topic I want to dive into.

You’ve got this really strong quote, this quote in your book that really stuck out to me that says, we commit so much effort to trying to get to a financial number for retirement, yet we often overlook other elements of life that bring joy. Is it any wonder that retirees are far more depressed than both the population broadly and same-aged non-retirees in specific?

Talk to us more about this quote. It just really stuck out to me, especially this comment about retirees being far more depressed than pretty much everybody else.

Daniel Crosby: At the risk of bumming out your listeners, one of the things that we see in the data is that deaths spike dramatically the couple of months immediately post-retirement. If you think about in that chapter you’re quoting, I talk about sort of the five facets of human flourishing.

These were pioneered by Dr. Martin Seligman, who’s the pioneering mind behind the world of positive psychology. Positive psychology basically is the opposite of Freudian or other psychology. Freud and all those other early folks were studying what makes us broken and what makes us sick and what makes us sad.

Seligman’s genius was to flip that on its head and say, well, what makes us ecstatically joyful? What makes life worth living? What makes someone a great leader? And he found that there’s really these five pillars of a good life. We’re going to give people the secret to existence here on your podcast, and we really only candidly prepare for one in the traditional preparedness for retirement.

We really over index on one and ignore the other four. The model is called the PERMA model. The p in PERMA is for positive experiences. So this is fun and leisure. This is golfing, going on a vacation, going to the beach, etc.

We do a great job as a financial industry of preparing retirees for that. And all the brochures and the pamphlets and everything are two silver-haired folks, sailboats on the beach, correct, yucking it up on a beach by a lighthouse.

That’s positive experiences and it’s nice. That’s part of it. But the second facet of a good life is engagement, and that is hard work. That is deep, meaningful work. And it could be a hobby, it could be a vocation, you don’t have to get paid for it, but sort of what is the immersive effortful thing that you’re going to spend your days doing in retirement?

And there’s not a lot of thought or financial preparation for that. The third one is relationships. This is the most predictive of any of the five of happiness. The fourth is meaning, which is religion, spirituality, charity, volunteerism, teamwork, just working for something bigger than yourself or bigger than a dollar.

And the A is for advancement, which is personal growth. And if you think about our work lives, as much as we may hate certain facets of our work lives, they do a great job of surrounding us with people. They make us part of a team, they give us natural ways to measure and get rewarded for advancement and they’re deeply engaging.

So traditional work does a whole lot of good in the world of lifting these boats. The only thing that it doesn’t do well is the positive experiences. And so then I think we sort of overcorrect when we’re preparing for retirement.

We go, well, my time will be my own and I’m just going to have fun, fun, fun. And we’re really not wired for that. Once you understand this framework, you can start to prepare for retirement more holistically and not make the mistake of overcorrecting on leisure and fun.

Taylor Schulte: Is there any research that suggests that in the early stages of retirement, this honeymoon period, there is this point where, yeah, you are going to enjoy this time, do whatever you want and be really selfish, but be prepared to transition into the stage where we need to be more thoughtful of how we’re spending our time.

Daniel Crosby: I think you and I could both use a month off. I dream about that pretty much every day. It would be amazing to get two to six weeks and go kick it. I would love that and I really think I would enjoy every minute of it.

But after that I think it’s very natural and I’m certain that you’ve seen this in your work for people to go, okay, that was fun, but what now? That was fun and I needed that, but what’s next? And we’re really not wired for passivity.

We’re really not wired for stagnation. And I think that’s a beautiful thing about humankind. We’re sort of wired for growth and productivity and we’ve got to be feeding that part of ourselves in retirement or we’re going to be very sad.

Taylor Schulte: I won’t rub it in your face, but I did test that. I took a month off completely unplugged from life and everything. This is a few years back. I felt lost. I didn’t enjoy it. To your point, I felt stagnant. I wanted to contribute to things. I wanted to do something.

Now I was with my family and it was great to spend extra time with them and be really present and have the computer put away and all that stuff, but I really craved contributing to this world in some shape or form and it was a good exercise to go through, but it gave me this glimpse into what that is like everything being gone and you’re just kind of stuck with your own feelings and no obligations and responsibilities.

Fortunately my wife and I came back from that experiment if you want to call it that, thinking like we love where we live, we love our house, we love our schools, we love all the decisions we made. We love work. And so it really reinforced a lot of the choices we made.

So I can attest to how that might feel. I want to talk a little bit about New Year’s resolutions, the popular resolutions that people often quote versus regrets when dying. I know there’s some research done around this that you allude to in the book and discuss in the book. Talk to us about these two things, these New Year’s resolutions versus these regrets that we have when we’re dying.

Daniel Crosby: We’re recording this late in the year, so a couple of months from now, most of us, better than 80% of us will set goals and almost universally they center around money and health, money slash work and fitness goals. And almost universally we fall down and don’t reach these goals.

But this is sort of where we spend our time. If you even think about how you spend your weeks and your years and your days, and it’s very work heavy, but Bronny Ware was this hospice nurse in Australia and she was sitting with people who are about to pass on and she had the presence of mind to sort of capture their insights because these people have a view of life that it really can’t be overstated how valuable it is because all of us know intellectually that we’re going to die.

For most of us, that seems pretty remote most of the time, intellectually we know we won’t always be here, but in this moment I feel pretty good.

And that’s not all that real to me. For these people, it is extremely real. They are sitting there in the final days of their lives and she asked them, what do you wish you had done differently?

And work and money come up once in this conversation and only negatively. And the only way that work and money come up is I wish I had not worked so hard and cared so much about money.

And I think we owe it to ourselves to learn the lessons from these people for whom what matters in life and what doesn’t matter in life has come into really sharp relief. I think they have a really powerful lesson to teach those of us for whom death seems kind of remote, that one day we’re going to look back and we’ll probably mourn the hard feelings we had towards people we loved, but we probably won’t mourn not working a little overtime or that extra business trip or whatever it may be.

So I think we should let that impact the way we make decisions in the here and now.

Taylor Schulte: I love all that and appreciate you sharing and like we’ve said multiple times now, there’s a lot more in the book around all these different topics that are very, very, very relevant to retirees and the challenges that retirement savers face.

We’ll be linking to the book in the show notes for today’s episode. I’m giving out copies of the book because everybody knows I’d love to hear from you. Actually, I’ve never asked you this question, just what prompted you to write this book?

This is not your first book. I know what it takes to write a book, and oftentimes authors get done with the book and they say, I’m never doing that again. So what prompted you to write this book and what do you hope people get out of it?

Daniel Crosby: There were really two things. I’ll start with the macro. The macro is we live in the wealthiest time in human history. When the US was founded, 85% of the world was living in backbreaking poverty. 85% of the world lived on what is today, $2 or less a day in the late 17 hundreds.

And today that number is 9% because of the miracle of markets and capitalism and the arc of human history bending in the right direction. We have a thriving global middle class and people are doing better than they ever have before. Big picture housing sizes have tripled in the US post World War II

There’s just a lot of abundance and yet if we go to sort of the spiritual or the existential or the psychological side of the coin, people are profoundly sad. Mental illness is at all time highs. Isolation and loneliness, especially among young people is absolutely bonkers.

I mean, it’s 79% of Gen Z say they have no friends. We live in this time where there’s this weird juxtaposition of incredible abundance and incredible psychological impoverishment.

We have not figured out how to take our material success and translate it into happiness and meaningful and joyful living. And I wanted to put a brick in that bridge to bridge those two concepts simultaneously at the micro level.

I had a health scare quickly. I began to have all these really scary symptoms. I had this buzzing in my head and pain and light sensitivity and migraines and partial blindness. And I went to WebMD and I looked it up, which is a massive mistake. I was going to say, it gives you back the scariest possible list of things. It’s all like brain tumors and stuff. The least scary thing on the list was a tooth problem.

And so I went to my dentist and I’ve never had a cavity. I’ve had good teeth forever. And I go to my dentist and my dentist gives me x-rays and an exam and the whole nine and says, look, your teeth are fine. Clearly it’s something else.

And so it set me on nearly a six month journey of psychiatrists and different therapies and oxygen therapy and cat scans and MRIs, and I could not figure out what it was. And I was just in an excruciating amount of pain.

And one day I was so bad and my wife was driving me to the emergency room. We were going to try this. I’m crying in the front seat of my car and I’m like, I’m going to die and my children are going to be fatherless. And I said to my wife, I would give every dollar. I have to figure this out.

And I mean, I am someone who likes money. I write about money. I think about money I save aggressively, and I would’ve given you every penny I had in that moment for answers to my questions and relief from my pain. The story has a happy ending.

Two weeks later, I was eating a sandwich and my tooth just split in half. It had been my tooth the whole time, and I had never gone back to the dentist because I felt like I had ruled it out and it was just my tooth. They pulled my tooth and I’m fine, not a tumor. So that multi-month process was so visceral for me and so vivid for me of just saying, Hey, this thing that I have put so much emphasis on just felt so small.

Taylor Schulte: In that moment. Now you would’ve given up all of your money to solve this problem, but would you have given up Diet Coke?

Daniel Crosby: Well, no Diet Coke, it turns out and bruxism are what caused it. Excessive Diet Coke and gritting. My teeth at night are what cracked my tooth. So I love you Diet Coke, but you did hurt me pretty bad there for a minute.

Taylor Schulte: Well, I did see you recently and you look fantastic, by the way. I almost didn’t recognize you, and I did see you drinking a diet Coke, so you haven’t completely eliminated it.

Daniel Crosby: Well, I’ve lost a lot of weight, but I’ve lost no love for Diet Coke. It’s true.

Taylor Schulte: I really appreciate you coming on today. The book is absolutely fantastic. I’m excited to give it away to listeners. Please, please, please go and check out his book, buy Daniel’s book. It’s amazing. Holiday season is coming up. It’s a great gift for other people.

As everybody knows, I don’t have a lot of guests on the show. I don’t do a lot of interviews. I don’t have a lot of authors on the show. So when I have somebody on like Daniel, it’s truly because he is an amazing person making amazing contributions to this profession, to retirement savers all around the country, all around the world.

So Daniel, thank you very, very much for all of your work, all your contributions, and for joining me here today on the show.

Daniel Crosby: Taylor, it’s an honor. Thank you for sharing your audience with me.

Episode Disclaimer: This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.