Preface

Does Money Buy Happiness?

I’ve kept very few mementos in my life—only a handful—and most have been lost over time. But there’s one movie ticket stub I’ve held onto for the last eight years.

I keep it in the same little wooden box that holds my watch and my wedding ring—the same little wooden box I open every morning as I’m getting ready for work. So I see the ticket nearly every morning of my life . . . and I’ve been looking at it since the movie came out in 2006.

The Pursuit of Happyness.

I have three young sons myself, so the story really resonated with me. Every time I even think about complaining about the financial industry or the lackluster performance of a particular stock, I remember the story of Chris Gardner (played by Will Smith) who was homeless and taking care of his five-year-old son as he began what would eventually become a successful career as an investment advisor.

All this to say, I guess I’ve always put extreme importance on being happy—and trying to help others do the same.

So how do we get happy? Do we have to do what Chris Gardner did and start pulling a six-figure income? Is that what it’s all about?

Even as a kid, I was intrigued by the relationship between money and happiness. I’ve spent my whole life asking the question: Does money buy happiness? It’s still the number one question I am asked when I do radio and TV interviews: What’s the link between money and happiness? Do you need loads of the first to get more of the second?

We all ask those questions. Every one of us is familiar with the nagging questions: “Do I have enough? Will I go broke?” And the one place in our lives where those questions really crystallize is when we start thinking about retirement. Talk about a landscape where people’s biggest dreams collide with the harshest realities!

We want to retire early, but we’re not sure we can. We have big plans for the future, but we don’t know if we can afford them. We long to see the world, but we don’t know when we’ll be able to stop working—and we’re too scared to find out.

My entire career has been devoted to helping people retire as soon as they possibly can. I do it every day at CIA (no, not the Central Intelligence Agency—in my case it stands for my firm, Capital Investment Advisors). I’ve helped hundreds of couples and individuals retire sooner—and more comfortably—than they ever thought possible. How do I do it? Naturally, we put financial strategies in place and rely on specific investment vehicles and tools. But there’s something else, too, something bigger going on.

I’ll tell you my secret: If you want to retire early, you have to figure out the relationship between money and happiness. I truly believe this is the key—and it has the power to unlock the retirement of your dreams.

This isn’t the sort of stuff you hear investment advisors talk about. Most people in the world of finance are far more comfortable chatting about stocks and bonds than discussing the nebulous, feel-good concept of “happy.” But not me. I love talking about this stuff. I talk about it all the time when hosting Money Matters, one of the most widely listened to and longest-running personal finance and investment radio shows in the United States. And, thanks to my radio audience and a healthy client list, I have access to one of the most extensive pools of retirees in the nation.

You’d better believe I make good on it. Using the world’s most popular and robust online survey tool, I conducted a comprehensive study of more than 1,350 retirees across 46 states. I asked my survey participants more than three dozen questions on a variety of topics: income history, their assets, home value and level of mortgage debt, spending habits, sense of purpose, how many vacations they took, what kind of cars they drove, and where they went out for dinner—just to name a few. Some of my findings were exactly what I’d suspected; others weren’t.

This book is the culmination of that journey, the result of all the studying and testing and researching I have done on my quest to figure out: Does money buy happiness? And more specifically: Does money buy happiness in retirement?

I’ve been asking those questions all my life.

The answers, of course, are far from simple: it does, and it doesn’t.

It Does

At its most fundamental level, money provides three things: safety, health, and freedom. No one can argue that your retirement income will provide:

    • Safety. One of the greatest fears people face is running out of money. I hear it all the time: “I don’t want to be broke.” “I don’t want to have to depend on my kids to take care of me.” Once we reach a certain level of net worth and have obtained a “cushion,” we can take these basic human fears off the table. What a relief! You’ll no longer spend sleepless nights worried about running out of money and being forced out on the street, or fretting over not being able to buy groceries. It’s a direct link: a certain level of money equates a certain level of safety.

    • Health. There are certainly no guarantees that money will equal good health; plenty of millionaires die young, victims to cancer or other debilitating diseases (think Steve Jobs). However, having a financial cushion and a certain level of resources will ensure that if something does go wrong medically, you will have the best chance of getting the treatment and medical attention you need.

    • Freedom. Once our basic needs are covered (food, shelter, health), money provides an additional benefit: the ability to enjoy the fruits of our labor. This freedom takes different forms for different people: it could be traveling, going to the opera, playing volleyball, spending time with grandkids, or volunteering at a favorite charity.

And It Doesn’t

But here’s what you may not know: money buys happiness only to a certain point. After a certain level of wealth is achieved, a “plateau effect” occurs, resulting in a diminishing return on happiness.

In America, we tend to have a sense of what our standard of living should look like. Once we get there, we’ve essentially achieved our goals. The funny thing is, the more we add on from that point, the less it affects our overall well-being.

The Woodrow Wilson School at Princeton University recently conducted a study showing that once people reach an income in the neighborhood of $75,000 per year, happiness levels off.¹ In other words, your chances of avoiding unhappiness are greater if you make at least $75,000 per year, but you don’t keep getting happier and happier from there. I call this “diminishing marginal happiness.”

Yes, more income and more “cushion” get us to a point where we can enjoy greater safety and the freedom to pursue the things we love. But once we get to a certain point, we are often able to “buy and do everything that I ever wanted to do”—to borrow a line from one of my favorite happy retirees.

It’s all in the data—I’m not making this up. It’s as if, once we have a cushion, more money doesn’t necessarily add to our sense of how great that cushion really is.

I want you to keep that in mind as you read this book. Retiring early is not about saving as much money as you possibly can. Of course, you want to have a cushion that affords safety, freedom, and a better chance of staying healthy, and saving and investing your money wisely matters—I’d be crazy to say otherwise. But it’s also about the life you’ve been building for yourself, the choices you make, and the activities you pursue.

The happiest retirees know this. They’re happy not just because they have money in the bank, or because they know the five money secrets: they’re happy because they are living with purpose—whatever “purpose” means for them.

If you want to know how they do it—if you want to follow in the footsteps of the thousands of men and women who have been able to retire early and retire happy—then keep reading. I wrote this book for you.