Will Defining Your Retirement “Number” Make You Happier?

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Stop being a slacker, and get back to work!

“I think my idea of retirement might be to one day work a 40-hour week.”
–Vincent K. McMahon

I, at one time, was an intern at one of Atlanta’s largest law firms. As part of summer recruiting program, the firm set up a dinner at the house of one of the senior partners. It was meant to impress us by painting a picture in our minds of what was possible if we worked hard, progressed through the ranks, made partner, and stuck around for 40 years in the practice of law.

The man lived in a mansion. It was easily over 5,000 square feet. While some people have a wine refrigerator, this man literally had a wine cellar. He bragged that he had over 2,000 bottles of wine and that he would never be able to drink them all in his lifetime. He had to get special insurance on the wine, since he had well over a half a million dollars of squeezed grapes sitting underground.

The entire time that this soiree occurred, I kept wondering to myself “does he really enjoy the practice of law that much?” Did this man have no other hobbies? Could he find nothing else to do with his time than to suffer through a traffic-filled commute (except on weekends, when there was little traffic, but half of the firm still in the offices) to go to work so that he could buy more bottles of wine that he was never going to drink?

This senior partner’s showy ostentatiousness, at least in my book, turned me off of the firm and off of the practice of law in general. Instead, ironically, I transferred to business school where CEOs and investment bankers did the same thing. Same slop, different pot.

There are a few people for whom what they are doing is so closely aligned with their interests, values, and priorities in life that they would work for free and continue to do so until the day that they dropped.

That number, though, is an infinitesimal sliver of the overall working population. There is a much larger number of people who continue to work for one reason alone.

Inertia. It’s what they’ve always done and they never think to do something else.

Whether or not we overwork and overearn was a question posed by the University of Chicago’s Christopher Hsee. He designed a elementary but brilliant experiment to determine if we would overearn and, if so, if we would be less happy for having done so.

He set up a two part lab test. In the first part, participants listened to pleasing music. They could hit a button and listen to .2 seconds of a horrendous noise. Doing so enough times would earn them a chocolate. They could earn as many chocolates as they liked during the time period. Then, in the second phase, they were able to eat the chocolates, but they were not allowed to take the uneaten chocolates out of the lab. It was the chocolate corollary to the notion that you can’t take your toys or your money with you when you die (unless you’re an Egyptian pharaoh, in which case, disregard that statement).

The first result was unsurprising. The participants who had to listen to fewer obnoxious sounds per chocolate earned more chocolates. It seems that we have a certain capacity for work, as demonstrated by the willingness to interrupt something pleasurable in exchange for a piece of chocolate, and once we’re exhausted – tired of hearing obnoxious noises – we stop working. No matter how much you love your job, you’re only physically able to work so long before you drop from exhaustion or become too frail to work anymore.

The second result was more surprising. The participants earned many more chocolates than they wound up eating, especially for the group that had to listen to fewer annoying noises to earn chocolate. The high hourly rate chocolate earners earned 252% of the chocolates that they actually ate, meaning that they had a significant excess chocolate earnings, just like the law firm partner who had more bottles of wine than he could drink in his lifetime.

What happened when the participants had to consume everything they earned? Citing “ethical problems,” Hsee didn’t choose to make the participants eat every chocolate they earned (I suspect it was to keep the janitors happy), but, instead, displayed jokes on a computer screen. The more jokes someone earned, the less time each joke was displayed on the screen, so that if there were far too many jokes, they’d all be a blur and they’d not be able to read any of them.

Hsee then broke up the participants into two groups: one group that predicted how many jokes they’d want and another group that did not.

The group that did not predict how many jokes they’d want earned, on average, more jokes than they could read, and they were much less happy. The ones who predicted how many jokes they’d want to read stopped when they reached the desired number of jokes and were much happier.

The takeaway from the experiments was that if we don’t think beforehand about just how much we can reasonably consume, we’ll continue mindlessly working, trading potential leisure time during our working years for earnings that we wind up leaving on the table. We reduce our overall happiness because a) we don’t enjoy leisure as much during our working years, and b) we shorten the time to enjoy what we’ve earned after we stop working, leaving us with unused earnings.

Economists have identified that we get our highest happiness – they call it utility – when we smooth our consumption throughout our lives. In an ideal world, we’d not eat ramen at age 25 because we can’t enough steak at 65 to make up for the younger self’s deprivation. It’s why sabbaticals, pre-retirement, and mini-retirements are becoming more popular: leisure time lost is leisure time that can never be replaced.

However, even though we want to enjoy leisure, we’re driven on by fear that we won’t have enough money in retirement, and we let the fear of becoming a cat food connoisseur drive us to keep working, even when we have accumulated enough money to not need to work.

As a result, we trade leisure time for security against potential black swan events.

Or, we don’t even think about it in the first place and just work because that’s what we think that we’re supposed to do.

It’s almost impossible to accurately predict the exact amount of time that you’ll need to work to have enough money so that you can spend all that you want and, if so desired, leave all that you want to heirs and beneficiaries without working a day more than necessary. But, you can get reasonably close to knowing how money you’ll need to hit those goals and be fairly secure that, except in the most extreme of extreme scenarios, you’ll have sufficient money to not run out.

Hsee’s experiment showed that when we have a reasonable idea of how much we’ll consume when we’re done working, we stop working, and, when we reasonably match work with our lifetime consumption, we’re happier for having achieved that balancing act. Too little work, and we’re miserable when we stop working. Too much work, and we’re miserable while working and miserable afterwards because we rue the missed time.

How Can You Reach the Goldilocks Moment of Work?

Don’t just mindlessly work for work’s sake. I imagine that the law firm partner who had that cellar full of unused wine wasn’t as happy as he could be. Here are a few ideas for how to strike that right balance.

  • Get an estimate of how much money you’ll need in retirement. It’s going to be a function of your retirement spending, bequest desires, and safe withdrawal rates combined with when you’ll retire. Once you have that number, you’ll have your goal. It might change a little over time, but that number isn’t going to quadruple overnight.
  • Know what your priorities in life are. You have to have a sense of what’s truly most meaningful to you in your life and what activities align with your values to bring you eudaimonia. Without that clarity in your life, you could easily fool yourself into believing that work is what makes you happiest, when it’s probably not.
  • Maximize your leisure time while you’re working. When I was in the Army, some of the non-commissioned officers got caught up in a vicious cycle of one-upmanship. They were all trying to be the earliest ones in each day, and eventually, they started sleeping on cots to be first. Finally, someone realized the ridiculousness of it all – after all, soldiers weren’t going to be around at 2:30 AM to see who was first – and the “competition” ceased. If you’re not careful, though, you can easily be caught up in the same game, wanting to be seen as the last one out of the office, even though your usefulness for the day long since ended. Why waste those hours pretending to be productive when you can be happier elsewhere? Instead, blow them away while you’re at work working and deliver great value so that they measure you by your results rather than by the amount of time that you spend at the office.

For all I know, that law firm partner is still there at the firm, chugging away, accumulating more bottles of wine that he’ll never drink. As for us, we have the freedom to do what we want and are choosing to build a greater safety cushion, as we’d rather have a more expansive lifestyle in retirement than retire now and live a more constrained lifestyle. But, we’ve intentionally chosen, and when we hit that point, we’re done.

What about you? Will you work until you drop, or has this awakened you to the idea that you might overearn and overwork in your lifetime? Tell us about it in the comments below!

Hull Financial Planning Winning With Money Course

How do you know what the retirement “number” is? How can you truly know what your priorities in life are? The Winning With Money course provides those answers and more in its 20 lessons, 8 worksheets, and several exercises designed to provide you with the answers you need to have certainty in your financial life. Stop spinning your wheels and take action!

About Jason Hull

Jason Hull is a Fort Worth financial advisor. Before becoming a Fort Worth financial planner, Jason co-founded, built, and sold a software development company. He is a CFP candidate, has a MBA from the University of Virginia, and a BS from the United States Military Academy at West Point. He is the owner of Fort Worth financial advisor Hull Financial Planning.

Comments

  1. I figured out what my number would be if I wanted to spend 60k in today’s dollars every year and right now my projections show me almost doubling the needed amount if we both worth until we’re 65 on the current savings path. However, I know if we retire early we’ll need a bit of extra wiggle room in there. I don’t think I’ll ever completely stop working on projects, but there will be a time where I’m comfortable changing either how I’ll get to retirement or when I’ll retire. I won’t stay in the current grind until I’m 65 or 67.

    • Once you know the target and when you’ll get there, you can start to play with other variables. Do you retire early? Do you work part time? Do you take sabbaticals? Increase the lifestyle a little?

      It’s awareness that causes the happiness. Nobody ever says “I wish I had worked more” on their death bed.

  2. “Or, we don’t even think about it in the first place and just work because that’s what we think that we’re supposed to do.”
    That describes many military who are about to retire from active duty. Starting a bridge career is nearly automatic– it never even occurred to them to determine whether they could stop working and “really” retire.
    Once they have the epiphany, though, it’s great to watch them take control and change their lives…

    • That’s the general narrative everywhere: go to college, work until you’re sixtysomething, and retire. Heck, the media wants us to believe that narrative isn’t even possible.

      I think the biggest problem with the military narrative is that we believed, when we were in the military, that the retirement pay would be enough to live on in and of itself. I had many friends who never saved or invested. Their answer? “Why should I, when I’m going to get retirement pay?” It’s only when they’re going through the outprocessing that they realize the retirement pay isn’t as much as they originally expected.

  3. Jason,
    I think you won the personal-finance-internet for the month. It is so easy for us to work, keep working, keep earning, and not pay attention to the costs. That describes me in a nutshell a few years ago. Getting raises, working hard, getting raises, and oh yes, being miserable. My job got to the point where productivity didn’t matter, being in my desk past 5:00 mattered. So I looked at our lifestyle, my work, my unhappiness, our finances, and quit.
    My new practice is smaller, easier, less stressful. My clients are happier, saving tons in fees and getting better service from me. I’m making less (for now) but also spending more time with my family and doing the things I love. For example, I’m writing this from my tablet sitting on the patio while the two year old blows bubbles, the baby naps and my wife is out for a run.
    We should all spend time evaluating the costs and benefits of our current work and lifestyle. I think it is difficult, though, for many people (like your old lawyer boss) to admit they might be happier with less. But life can be pretty great for those of us willing to take a closer look.
    – James

    • James–

      Thanks for the kind words! Because we focus too much on money, we lose sight of everything else in life, namely what that money can buy us.

      Working from home is great. I may miss a few of the marketing benefits of having an office (our office in my last company was there primarily to allow the developers to congregate), but that’s a worthwhile tradeoff to me.