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Free advice from the far side: a retiring economist’s ake on the “U-shaped curve of happiness”
Jim Whitney, June 22, 2014
Before there was the U-shaped curve of happiness, there was…
The Seven Ages of Man
…The sixth age shifts
Into the lean and slippered pantaloon,
With spectacles on nose and pouch on side;
His youthful hose, well saved, a world too wide
For his shrunk shank; and his big manly voice,
Turning again toward childish treble, pipes
And whistles in his sound.
Last scene of all,
That ends this strange eventful history,
Is second childishness and mere oblivion,
Sans teeth, sans eyes, sans taste, sans everything.
William Shakespeare, As You Like It

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My “legacy” lecture
• My topic
• My timing
• My credentials

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1. The U-shaped curve of happiness
2. My personal journey along the U-shaped curve of happiness
3. Questions and answers
4. Happiness at home and abroad: key findings from the new field of happiness research

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How do researchers determine how happy someone is?
1. Usually, they just ask people—massive surveys
2. Exactly the same survey everywhere and every time
3. Example: Gallup-Healthways Well-Being survey: every year since 2009. 160 countries, 1,000 people each year in each country. Overall self-evaluation question:
Please imagine a ladder with steps numbered from 0 at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?

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Researchers then try to figure out why happiness differs across survey respondents:
What makes people happy in the first place?
Should you go to college?
Yes, good for you
Should you get a job?
Should you get married?
Yes
Yes, at least so far
Should you have children?
Should you exercise?
Only if you want to
Yes
Should you eat lots of fruits and vegetables?
Yes
Should you retire by 66?
Not completely
How much income should you make?
The more, the better
Should you be a man or woman Woman

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-0.200
-0.400
-0.600
-0.800
0.400
0.200
0.000
Here’s how each of these compare in contributing to happiness:
Impact of key factors on happiness ratings
0.800
0.600

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• It appears everywhere researchers have looked
• Happiness starts high in early adulthood, declines to the
“mid-life” crisis in the 40s to early 50s, then rises afterwards
• It exists in practice, so can it exist in theory?

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• Middle years are the most stressful: financial responsibilities, child rearing, job security, etc.
• NAS researchers took factors like those into account (female, child at home, unemployed, partnered)
• This chart shows what happened

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An alternative possibility:
NAS also found that people’s emotions change with age
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Q: Why?
A: With experience, our coping skills get better, and we don’t sweat the small stuff as we age.

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Part 2: My life in thirds
--and how you can live it
My foundational advice: Don’t settle down too soon or retire too late
• The 30/60/90 rule
• Probably not always popular with parents of my advisees
• I was 30 when I started my career at Oxy but had already fudged some
• And now, I am trying to walk the talk and retire before it is too late. Here is how that is shaping up….

Our spending skews toward travel and activities, so we spend less on tangible items.
Here is a picture of our first home, taken when we bought it in 1987:
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My mother-in-law described it as
“a perfect starter home.”

Here is where we live now:
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My mother-in-law now describes it as
“a perfect retirement home.”
We still have the same next-door neighbors too

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And here is the bike we ride to the Y for exercise, ride to the Rose Bowl for yoga, and fold up to fit in our trunk when we travel:

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Our consumption goal is what Keynes called “sufficiency” for the good life. Here’s what that looks like for us:
Projection of affordable inflation-adjusted annual retirement consumption, as a percentage of actual average consumption during my final 7 working years
160
140
120
100
80
60
Scenario 1: With projected return on financial assets
Scenario 2: With no future growth of inflation-adjusted financial assets
Actual
40
20
0
55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99
At age...

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Overall, we presently feel contented and optimistic so far.

We feel good about how things have worked out.
We have been lucky, but we have also made some decisions that helped
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1. We based our retirement savings target on consumption, not income
Benchmark: average consumption over my last 7 work years + a premium for retirement activities in our “early” years
Key resource: Economic Security Planner
2. We saved from the start of my Oxy career
1983-2001: 15% (Oxy: 8%; payroll deduction: 7%)
2002-now: 17%+ (Oxy 10%; payroll deduction: 7% to max)
3. We plan to maximize our Social Security income
Jim: File and delay at 66; own benefits at 70
Linda: Spousal benefits at 66; own benefits at 70
Key resource: Maximize your Social Security Income

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DrJ's inflation-adjusted investment index
140.00
120.00
100.00
80.00
60.00
Portfolio allocation
Large cap domestic
Mid/small cap dom
Specialty
International
Cash and bonds
Typical
Aggressive DrJ
30% 40%
30% 24%
25%
15%
12%
24%
0%
40.00
20.00
0.00

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…and held onto them through bad times and good
DrJ's inflation-adjusted investment index
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00

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Index of DrJ's inflation-adjusted retirement assets,
1993 = 100.0
900.0
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0
Index of retirement savings

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600.0
500.0
400.0
300.0
200.0
100.0
0.0
Index of DrJ's inflation-adjusted retirement assets, actual and trend adjusted, 1993=100.0
900.0
800.0
700.0
Index of retirement savings
Trend-adjusted index

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We decided to retire once we had reached our retirement assets goal:
140
120
Projection of inflation-adjusted net financial assets (NFA), as a percentage of actual net financial assets one year before retirement (Dec. 2012)
Scenario 1: With projected return on financial assets
Scenario 2: With no future growth of inflation-adjusted financial assets
Actual
100
80
60
40
20
0
55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99
At age...

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Part 3: Happiness at home and abroad: key findings from the new field of happiness research
• Economics is all about happiness and well-being
• How we have measured well-being in the past
• Why change?
1. Well-being depends on more than income: clean air, comfortable community, individual freedom, confidence in leadership, fairness
2. The “Easterlin paradox”

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• Jeremy Bentham
• The difficulty of interpersonal comparisons
• Modern technology and diffusion of information

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Today’s global data sources are all recent:
1. Gallup-Healthways
Gallup World Poll (2009)
2. Bhutan
Gross National Happiness Index (2010)
3. Organization for Economic Cooperation and
Development (OECD)
Better Life Initiative (2011)
4. United Nations
World Happiness Report (2012)
5. Happiness Research Institute (2013)

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1. The “Easterlin paradox” appears to be wrong
2. The US performs well, but we’re not #1
• Per capita income
• Housing
• Health
• Safety
• Well-being

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UN Report lists “six key variables that we have found to explain three-quarters of the international differences in average life evaluations:”
• GDP per capita
• years of healthy life expectancy
• having someone to count on in times of trouble
• perceptions of corruption
• prevalence of generosity
• freedom to make life choices

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