25% happier

“People are much less happy if they have to cut their spending by 25%, but only somewhat more happy if they get to increase it by 25%”

Peter Hand of Barclays Global Investors (BGI) is the lead researcher and wanted to build a computer retirement model allowing him to calculate how much money one needs during retirement to live a happy life. It doesn’t go into details in the article of how he went about doing this research, but it certainly brings us a very interesting question of how do you measure happiness?


As a personal goal of mine, I’m trying to gain more exposure to the world of business and I came across this article in Businessweek and a new model for a “hybrid 401k”. Now, granted, I’m no guru in finances, but the main gist of the article is that  SponsorMatch is trying to reconfigure the current 401k model to function more like a monthly pension plan. I’ve still got to take some time to sift through many details, but the thing that sparked my interest were the metrics used to create this new hybrid 401k.

Hand uses his  “Happiness Model” to create services and computer formulas to stay above 75% of an individual’s expected income to keep a happy life, but keeps it from moving too far past +25% of what a retiree feels they need. Now, I have to say that I agree with this +/- 25 metric, not just in money, but in anything I enjoy. 25% more food is good, but if I’m already full, it doesn’t do me much good. BUT, take 25% of my meal away when I’m hungry and I’m one very unhappy girl. It’s just another life lesson in numbers to see that it’s a lot harder to lose than it is to gain.

I would be very curious to see what research Hand conducted to find these results. I can imagine they were survey questions or interviews, but wouldn’t it be ideal if they were interviewing clients they currently work with and have a repoire/history with versus a standard focus group? Ultimately, I think it’s wonderful that he’s using this idea of happiness to calculate the needs of all the people who want to live a good life in retirement, but his research seems like smoke in mirrors and is unclear. Happiness is an elusive thing, and even though this statistic resonants with me, I would be cautious buying into a 401k plan based on it.

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