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Friday, 9 November 2007

The Key to Your Happiness

By Mary Dalrymple

Think for a moment about all the things in life you can't control -- the weather, the price of gasoline, that crazy guy hammering the horn while you're stuck in gridlocked traffic. These things make us unhappy.

What can turn that frown upside down? Saying goodbye to deadlines, meetings, and micromanaging bosses forever. Yep, retirement can put a smile on your face. It doesn't matter whether you quit cold turkey or you take your time. What matters -- to your happiness, anyway -- is whether you have control.

Do it your way
That's what researchers at the Center for Retirement Research at Boston College discovered when they looked at survey data to see what effect retirement had on happiness. They found the cheeriest bunch of retirees had control over their decision to retire.

From the comfort of your plush cubicle, you may think that if it were that easy, golf courses would be packed with retirees grinning from ear to ear. But, consider for a moment that you may not have complete control over your decision to retire.

Among the millions of things you can't control, there are quite a few that might unexpectedly toss you into permanent unemployment. A major health problem or disability could hit you or your spouse. Your company might decide to replace you with some young whippersnapper. Your industry could start heading for a steep decline.

Be ready
If the winds of fate can toss you into retirement at any time, then it's your job to be ready. The survey data doesn't say why retirees with control over the decision reported more happiness. But part of the reason must be that they entered this new phase of their lives mentally, emotionally, and financially prepared.

To take care of the financial part, get serious about retirement now. You'll be more prepared when those winds blow your way. Consider these examples. Assume for a moment that we've collected a barbershop quartet of retirees who started saving for retirement at 20, 30, 40, and 50 years old. Assume each put away $10,000 that grew at the market's average annual 10% rate of return until retirement.

Our hypothetical retirees all expected to retire at age 65. But, what happens if the market for barbershop quartets dries up and they're all suddenly forced to retire three years early?

Retire at Age 65Retire at Age 62

20-year-old lead$880,000$665,000
30-year-old tenor$326,000$242,000
40-year-old bass$121,000$89,000
50-year-old baritone $45,000$33,000

A couple of things should be obvious. The longer you sit on your savings, the more money you will have when you finally need the cash. But also, being forced to tap that $10,000 investment early can make a pretty big dent in an anticipated nest egg. Wouldn't you rather be sitting on a bigger nest if you're pushed into retirement too early?

What you can control
You may not be able to reverse your health declines, save your industry from extinction, or prevent a vicious round of downsizing. You certainly can't control the public's taste in choirs. You can, however, control the money in your pocket.

You can choose to spend it now, or you can choose to set some aside for the future. Start piling it up now, and you'll be happier when things go out of control later. You have plenty of options for saving the money, once you've made the decision to get started.

Fool contributor Mary Dalrymple does not sing, but she welcomes your feedback. The Motley Fool has a fine-tuned disclosure policy.

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