Your Friends and Neighbours

Last week, two different writers landed on the same idea in the same week, without either knowing the other existed: a paper and, in Italian, a blog post, both asking what actually makes retirement satisfying. Call it a coincidence. Or call it a sign the question was overdue 🙂

Here’s the pattern in almost everything written about retirement, including what gets written here: it’s a money problem. The number you need. The portfolio that gets you there. The withdrawal rate that keeps you safe. There’s a second half to the question, the “you” half, that gets a fraction of the attention, even though it’s arguably load-bearing in a way the first half isn’t. The paper is the more rigorous of the two, so that’s the one I’ll lean on below. Read both anyway, the Italian one is worth the trip through Google Translate.

Here’s a fact that might mess with your idea of what makes retirement happy.

A retiree with more than $1 million in savings, but only $10,000 to $25,000 a year in guaranteed lifetime income, reported being satisfied with retirement 60% of the time. A retiree with less than half of that nest egg, $250,000 to $500,000 in savings, but $55,000 to $75,000 a year in lifetime income, was satisfied 71% of the time.

The person with less wealth was happier.

Before you take that headline at face value, it’s worth poking at it for a second, because the framing is doing something sneaky. A lifetime income stream isn’t money sitting outside the wealth calculation, it has a present value the same way a bond or a pension does. And the present value of $75,000 a year is three times the present value of $25,000 a year, at any discount rate.

Run that math and the “poorer” retiree stops looking poor. You’d need an unusually high discount rate, the kind that says the future barely counts, to make the saver with more cash in the bank the wealthier of the two.

These aren’t a rich, sad person and a poor, happy one. They’re two wealthy people, paid in different currencies: one in a pile of liquid savings, the other in a guaranteed paycheck.

That should make the original finding less surprising. Once you correct for present value and accept that the second retiree is (almost always) richer, the satisfaction gap makes sense. Which means the answer was never really about how much money you have. It’s about what kind.

The paper I linked breaks retirement satisfaction into four ingredients, divided into two pairs.

The wealth pair: total savings, and lifetime income (pensions and annuities).

The well-being pair: self-rated health, and social connection (measured with a loneliness scale, flipped so a higher score means more connected).

The key point is that the two halves of each pair aren’t substitutes. You can’t make up for thin lifetime income by piling up savings, and you can’t make up for thin savings by locking in more guaranteed income. You need both halves, or the math “of satisfaction” doesn’t work.

The same logic shows up on the well-being side. Excellent health paired with poor social ties scores worse than you’d predict. Strong friendships paired with poor health, same story. Health and connection aren’t a menu where you order one and skip the other. They’re a set.

So why nobody buy the annuity?!?

This pairing logic tries to solve a riddle that’s puzzled economists for decades, called the annuity puzzle: annuities are, on paper, a remarkably efficient way to fund retirement…and yet almost nobody buys one.

The only reliable way to boost your lifetime income is to give up savings, i.e. delay (State) pension, or hand a chunk of your portfolio to an insurer for an annuity. Income goes up. Savings go down. According to Blanchett’s framework, those two moves roughly cancel each other out in terms of satisfaction. You’re not climbing toward a better spot in the wealth pair. You’re sliding sideways.

An annuity is a demonstrated license to spend more freely. In practice, almost nobody exercises it, because the price of that license is a visible, immediate hit to the number in your account. People will trade a lot for guaranteed income. But they do not trade the comfort of watching their savings balance.

There’s also a one-way door hiding in here (here is my thinking): you can convert savings into lifetime income whenever you want, but you cannot convert lifetime income back into savings. That should worry anyone, Europeans especially, who’s decided not to bother building a nest egg because a pension will be there. Maybe it works out fine. The paper is measuring perception, not bank balances, and if everyone around you is living on a pension with zero savings, that might just be normal, and normal tends to feel fine. But “it might be fine” is a different claim than “it will be fine,” and the second one is the bet you’re actually making.

Actually…it’s worth pushing back on the paper’s own scoreboard for a second. It’s measuring “satisfaction,” and that’s a fine thing to measure, but it’s not obviously the only thing that should decide how you split your money between wealth and guaranteed income.

There’s research showing retirees give themselves permission to spend an annuity check in a way they never quite give themselves permission to spend down savings. An annuity check arrives pre-labeled “spend me.” A brokerage statement arrives labeled “the fuck are you thinking, do you remember all the sacrifices to get here?”. Which is obviously counterintuitive, since you save to… spend later, not to see the number go up. But go tell that to your brain.

There’s also the unglamorous difficulty of running your own savings, the part that never shows up in a satisfaction survey. Hitting a safe withdrawal rate that actually holds up for thirty (or more) years isn’t a spreadsheet you build once and walk away from, it’s a portfolio you have to keep getting right, through the year the market drops 30% and every instinct tells you to do something. That’s a real cost, even when nobody’s put a number on it. (Well, I guess your financial advisor actually put a number on it).

Savings claw some of that ground back, though, in exactly the spot guaranteed income can’t reach: optionality. A surprise medical bill is a savings problem, not an income problem. You can raid an account by Friday. You cannot raid next year’s annuity payment, not without going to a lender and paying handsomely for the privilege. Guaranteed income is wonderful right up until the moment you need a lump sum today for something a monthly check was never designed to cover. Then there is also the part that if you die ‘before the planned date’, you can leave something to the kids…but who cares about them, they never call 😉

I would therefore suggest to not go all-in or all-out. Keep a chunk of savings as savings, and use another chunk to buy guaranteed income. The catch is that you then need to retire with more total assets than you would otherwise, since you’re paying the annuity’s price on top of keeping a cushion. It’s a worse headline number but a better life.

On the well-being side, Blanchett’s go-to example is comically simple: pickleball. The gym gets you exercise without company. A book club gets you company without exercise. Pickleball gets you both in one activity, which is the whole game: find the thing that hits both halves of the pair at once, instead of doing two separate things and hoping they add up. I would go for the separate things…and definitely not with pickleball. At the end of the day, you should have plenty of free time to maximise this sleeve with what you like most.

Both links converge on the lesson for anyone building a retirement plan, professionally or for themselves: a portfolio is not a retirement plan. A real plan has to handle lifetime income, savings, health, and social connection together, because shortchanging any single one puts a ceiling on how satisfying retirement can be, no matter how well you’ve nailed the other three.

Once you see the two-pairs idea, you start noticing it everywhere else in life.

I spent more hours than I’d like to admit trying to convince my parents to leave the town where they were born and raised: an ugly, polluted, and (by Italian standards) expensive place. To me, the math was obvious: better air, better prices, a nicer place to be. To them, leaving meant giving up a lifetime of social connections, and per Blanchett’s own framework, that’s not a small thing to give up. I was offering them a wealth trade when the thing actually at risk was on the well-being side of the ledger.

There’s a phrase I heard before my first daughter was born that I think about constantly: you get three things — work, family, social life — and once you become a parent, you have to pick two. It’s not literally true, but it’s true enough to be useful. The honest version of having kids isn’t “you can have it all.” It’s “you cannot have it all, so set the bar in the right place before reality sets it for you.” Trying to fit all three into one day at full strength isn’t ambition. It’s a recipe for a disappointment that didn’t need to exist.

But this ain’t a forever rule. There’s an AppleTV show, Your Friends and Neighbors, whose main plot is…forgettable and not especially believable. The subplot, a handful of fifty-somethings quietly trying to figure out how to be happy, is the actual show. Kids reshape your life permanently, for better and worse, but your relationship to them keeps shifting too. As they grow, you get the first crack at reclaiming time for yourself. Retirement is the second crack. Neither one arrives with a manual. On the rare free weekend, I catch myself laughing because I have to consciously practice doing nothing: doing nothing is easy to dismiss when your life runs at 200 km/h, but if Netflix-and-chill is the entire retirement plan, that’s not rest. That’s a problem.

Building something to do with the eight hours a day you currently spend on work you don’t particularly love is a real project, and there’s more than one way to win it. Step one: find work you’d never want to retire from (once the “is the salary enough?” is not a relevant question anymore). Step two: stay in control of when you leave it, because most people who stop working didn’t choose the timing. They were shown the door.

And keep your social circle alive, even when it feels close to impossible. The gap that opens up between you and your childless friends can get enormous. The best you can do is keep a small boat rowing between these two shores. I’m not particularly good at this, but I’ve got two guys I podcast with who turned into real friends, and I play fantasy football for no reason other than staying in a group chat with people I’d otherwise drift from.

It’s probably healthy, too, to get good at being fine on your own: resilience is partly just not needing an audience. Just don’t use that as an excuse to disappear into it, and I’m saying that to myself more than anyone else. Of my wife’s twenty thousand good qualities, one of the most underrated is that she’s an incredible PR agent on my behalf, constantly feeding me a stream of people who might become friends if I’d just show up.

Which is really the same lesson twice, once for your bank account and once for your actual life: you don’t get to optimize one half of a pair and call the job done. Savings need income. Health needs friends. Work needs a life outside it. Pick the wrong half to neglect, and no amount of winning on the other side will fully make up for it.

What I am reading now:

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