How Much Does Being Rich Matter in Retirement?

A retired woman stands outside her home. — (Image credit: Getty Images)

When it comes to preparing for retirement, many people rightly focus on shoring up their financial security by contributing to 401(k)s, IRAs, and other investment accounts.

With Social Security replacing only 40% of pre-retirement income, having sufficient investment income is critical to being able to maintain your standard of living after leaving work, so it comes as no surprise that saving enough money tops the list of things people think about as they prepare for their later years.

That's why a recent study from the Center for Retirement Research at Boston College may come as such a surprise. The research looked at multiple measures of retirement wellbeing to determine what impacts life satisfaction — and determined that when it comes to financial well-being, being a rich retiree, or having a large net worth, was not nearly as important as you might think.

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More money doesn't necessarily buy more happiness as a retiree

According to the research, income and wealth levels had a far lower impact on financial and life satisfaction than you might expect. Specifically:

A $10,000 increase in annual income only increased financial well-being by 0.01 to 0.05 on a 10-point scale.
A $1 million increase in wealth was associated only with a 0.3 to 0.8 increase in financial satisfaction on a 10-point scale.

Based on this low correlation between wealth and satisfaction, researchers concluded that "objective financial measures – such as income and net wealth – are poor predictors of older adults’ self-reported life satisfaction."

This helps to explain many past studies in which retirees report high levels of life satisfaction despite also indicating they regret not saving enough and despite having so little savings that making substantial spending cuts becomes necessary after leaving work.

What does impact retirement happiness?

So, if being richer — and even having millionaire status — doesn't have much of an effect on retiree happiness, what factors did make a difference?

The research found that physical health plays a role, with healthier retirees generally happier than those who experience serious physical issues. Finances also matter, though — but it wasn't income and savings that made a difference. Instead, it was levels of non-mortgage debt — and especially credit card debt — that had the most profound effect on life satisfaction.

Specifically, researchers found that households were one point (out of 10) less financially satisfied with their lives for every $100,000 in non-mortgage debt they owe.

It's not a surprise that debt is a big issue for retirees, as owing money leaves older Americans with less of their income to spend and can also create more financial stress as they worry about where their monthly payments will come from.

This data confirms previous AARP studies showing that debt is a major cause for concern among older Americans, with 61% of adults over 50 who carry debt reporting that the amount they owe is a problem, and 16% viewing it as a "major" problem.

Over a third (34%) of adults 50 and over who carry debt also told the AARP they had felt stressed about this burden in the past year, and one in five reported feeling depression related to their debt. Obviously, high levels of stress and depression will impact retiree happiness.

More retirees cope with debt than ever before

Unfortunately, a growing number of retirees are likely to experience a decline in life satisfaction due to debt issues, as the Federal Reserve reports that 64.8% of households aged 65 to 74 owed money in 2022, compared with just 49.7% in 1989.

The Fed also found that debt more than quadrupled in households within this demographic group between 1992 and 2022, rising from an average of $10,150 per household to $45,000 per household during that time.

High housing costs are a primary reason so many older Americans struggle, according to the AARP, as 36% of adults 50 and over mentioned this issue as a reason they owed money. Vehicle costs, everyday expenses, and an inability to work due to health or family issues were other leading reasons that older Americans said they were forced to borrow.

Bottom line

With the data showing that debt has the biggest correlation with low financial wellbeing, those planning for retirement should focus on taking steps to become debt-free before leaving work.

This could include using lower-interest personal loans to consolidate high-interest credit card debt and make repayment easier, as well as budgeting carefully to avoid borrowing or working longer to become debt-free before leaving the workforce.

While saving will remain important to fund a comfortable retirement lifestyle, treating debt payoff as a priority of similar importance will help to set future retirees up for greater happiness during their later years.

Christy Bieber is an experienced personal finance and legal writer who has been writing since 2008. She has been published by Forbes, CNN, WSJ Buyside, Motley Fool, and many other online sites. She has a JD from UCLA and a degree in English, Media, and Communications from the University of Rochester.