be happy in retirement

By Liz Pulliam Weston

The most important predictor of whether you'll be happy in retirement may not be how much money you'll have or how healthy you'll be.

The deciding factor may well be whether your decision to retire is voluntary.

At least, that's the conclusion of a study published by the Center for Retirement Research at Boston College. The researchers combed through profiles of 22,000 Americans and found that while money and health are important to retiree happiness, what mattered more was whether retirees had control over when they left work.

"The biggest impact on how satisfied people were with their retirements … was whether they wanted to retire at the time they did," said Keith Bender, a University of Wisconsin economics professor and the study's co-author. The "voluntariness" of retirement "plays a big role, even after controlling for other factors like income."
A common problem
Being forced out of the workplace before you're ready is, unfortunately, a reality many of us are likely to face. A full 40% of the retirees polled by the Employee Benefit Research Institute in 2003 had to retire before they'd anticipated.

What usually ushers people out the door prematurely are health problems and layoffs. A full 41% of those polled by EBRI who said they retired earlier than planned did so because of illness or disability, said EBRI Chief Executive Dallas Salisbury. Another 34% cited changes at work, including downsizing and closures.

Early retirement, planned or unplanned, is actually the norm. Half of all workers retire by age 62, according to the Social Security Administration, and fully 72% receive reduced benefits because they retired before age 65.
The trouble with unplanned early retirement
Unplanned early retirement, though, can cause a number of problems that can lead to unhappiness in retirement:

You have less time to save -- and a longer retirement period to fund. Many people hope to make up for lost time by saving prodigiously in the last few years before they retire. Even those who have been saving all along find a few extra working years to accumulate savings can be enormously helpful in funding their retirement. Losing those years can lead to a substantially lower standard of living.

Your benefits from Social Security and pensions are usually lower. Traditional pensions are typically calculated based on your salary during the final years of your working life. The older you are when you retire, the higher your salary and thus the bigger your benefit. Retire early, and your pension payoff takes a hit.

Similarly, you can qualify for Social Security benefits at 62, but the amount you get will be substantially lower than if you could have held out to full retirement age (currently 65, but that will be rising to age 67 for those born in 1960 and later). Early retirees currently take a 20% hit on their benefits, while those whose full retirement age is 67 will take a 30% cut if they retire at 62.

You may not be psychologically ready for the transition. Our jobs can give us self-esteem, status or simply a way to organize our time. Losing our jobs can mean losing all that, and the adjustment may be tough, even for those who plan well. Retired attorney Donald Olson of Newport Beach, Calif., planned his early retirement, but told me he was surprised at how he felt guilty at not getting up with the dawn and daunted by the challenge of filling his time with productive activities.

"It's about preparedness, knowing what you're going to do next," Ralph Warner, a retired attorney, makes the point eloquently in his book "Get a Life: You Don't Need a Million to Retire Well." "People who have thought about it and who have made plans about what they want to do are usually off like Energizer Bunnies."


People booted out of the workplace early might also feel discarded. Nothing says "you're expendable" like a layoff notice or an early-retirement package, and that can be a hard blow to take.
There's good news, too
The good news is that the vast majority of retirees, according to the Boston College research, are either very satisfied with their retirements (60%) or at least moderately satisfied (32%). But the chances of being in the 8% who are dissatisfied increase substantially when the retiree leaves work before he or she planned.

Those who were forced to retire were 30% more likely to be unhappy in retirement than those who retired voluntarily, Bender said. By contrast, those who experienced poor health in retirement were 20% more likely to be discontented than those in good health. (Bender controlled for both income and health when determining the effects of involuntary retirement; that means the likelihood of dissatisfaction persists even when the retiree has sufficient income and good health.)

Having enough money also contributed to happiness, but perhaps not as much as you might think. Each $1,000 increase in income or $10,000 rise in wealth was associated with less than a 1% increase in the probability that retirees would be among those most satisfied with their retirements.

A factor that was more powerful: whether or not the retiree had guaranteed sources of income. Those who had traditional defined-benefit pensions, which promise a set paycheck in retirement, were more likely to be happy than those who just had defined-contribution plans like 401(k)s, where the payout depends on how much you save and how your investments perform.
What can you do about it?
So how might you use these findings to improve your own retirement planning? Consider these:

Have a Plan B. If your current retirement goals require you to work flat-out until you're 70, or even 65, use MSN's retirement calculator to see how your fortunes might look if you were forced out of the workplace at 55 or 60. The results will probably make you queasy, but that could encourage you to boost your savings rate or pay off your debt faster, so your income requirements in retirement will be lower.

You also might think about setting up a side business to generate an additional source of income, or getting additional training to improve your job prospects if you're laid off late in life.

Think about what you want to do in retirement. Visualize your ideal day: what you'll be doing, who you'll be around, where you'll be living. A little daydreaming can help you figure out the retirement you really want, and perhaps get you started on bringing those dreams to fruition.

If you see yourself volunteering, for example, you might want to start exploring your options now. People who wait until retirement may find the causes they choose aren't as fulfilling as they expected, Warner said, or the charities aren't as interested in their services as they thought.

Guard your health. In his book, "Get a Life," Warner points out: What good is piling up a fortune for retirement if you did so by working so much that you wrecked your health?
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If you want to have a retirement you can actually enjoy, Warner says, you should start taking care of your health now. Prod your spouse into better health, as well. About 21% of those forced to leave the workplace prematurely in the EBRI study did so because of family reasons, such as an ill or disabled spouse who needed care.

Look for secure sources of income. Traditional pensions are on the wane, but 20% of American workers are still covered. You might want to look for a job that offers such a plan, or try to stay with your current employer if you're already covered.

If that's not an option, consider buying an immediate annuity in retirement. These contracts promise you a stream of income, usually for the rest of your life, in exchange for a lump-sum payment to an insurance company.

Currently, Social Security provides a guaranteed, inflation-adjusted source of income for more than 90% of retirees, but that could change if private accounts or other reforms are introduced. That makes it even more crucial to nail down another risk-free source of income to get you through retirement in comfort -- and happiness.

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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