‘The data is very clear': One key element leads to increased happiness in retirement—3 ways to get it

It's been a rough few years for retirees — well, if you ask them anyway.

Less than half — 48% — of retired Americans between the ages of 62 and 75 report being very satisfied with life in retirement, down from 62% in 2020 and 53% in 2022, according to recent data from the Employee Benefits Research Institute.

It's easy to see why things have taken a turn for the worse. As inflation has eaten into retirees' spending power, a greater portion of retirees report spending more than they can afford, with 68% carrying outstanding credit card debt, compared with 43% in 2020.

Within those overall numbers, though, some factions buck the trend. Retirees in good health and those working with a financial advisor, for instance, are more likely than their peers to report satisfaction with their retirement.

One factor in particular seemed to come up again and again in the data among happy retirees, says Bridget Bearden, a research and development strategist at EBRI and the study's author: "Some sort of guaranteed income."

"The data is very clear that public sector workers have better outcomes than private sector workers for that reason," she says. "There's a lot of indicators pointing to guaranteed income playing a big part in retirement confidence."

3 ways to give yourself some guaranteed income

The problem for many American workers: Forms of guaranteed income are getting rarer. Only about 35% of current retirees have pension income, and that number is likely to shrink.

Over the past few decades, private firms have largely eliminated pension plans. Instead, they've shifted the burden to employees to save in workplace retirement plans such as 401(k)s. Just 15% of private industry workers had access to a pension in 2022, according to Bureau of Labor Statistics data.

So unless you're a public employee, such as a teacher, firefighter or military member, chances are you won't be able to rely on private pension income in retirement.

You can't over-rely on Social Security either. Assuming the younger generation receives a full Social Security benefit, it's still only designed to replace about 40% of your pre-retirement income. The rest is up to you.

While some retirees rely on a strategy of regularly withdrawing from their investments to cover their expenses, the ups and downs of markets mean that income is hardly guaranteed. If you're looking for surer income in retirement, consider these avenues.

1. Annuities

About 8% of retirees surveyed by EBRI own an annuity, an instrument sold by insurance companies that guarantees the policy holder a certain amount of income over a set period of time.

Annuities take many different forms, but generally, you put in a large sum of money up front, and the provider issues you annual payments at an agreed-upon rate of interest.

While the income is guaranteed, the payouts often amount to less than what you'd earn by putting a similar amount in the stock market, points out Sam Dogen, a millionaire early retiree and founder of Financial Samurai. Plus, annuities are generally considered expensive and may come with higher fees than other types of investments.

"You give up flexibility by locking up a massive chunk of capital," in an annuity, Dogen says. And even with some of the better-paying annuities, you won't earn as much as you would with other instruments, he adds. "You're capping your upside."

Still, if you're more concerned with peace of mind than maximizing your retirement income, these may be an appropriate instrument to discuss with a financial professional, Dogen says. "An annuity is for an older retiree who might not understand their finances that well and who doesn't want to bother managing their net worth."

2. Dividend income

If you're willing to accept some volatility, owning a diversified portfolio of dividend-paying stocks can be a great way to earn steady income in retirement, Dogen says.

"Stock dividends are my favorite passive income strategy because it is 100% passive," he says.

It's common for large, financially mature companies to distribute some of their profits back to shareholders in the form of a cash payment, known as a dividend. Divide the amount of cash you earn per year per share by the stock price, and you have what's known as a yield — the percentage of the money the stock pays out relative to its worth.

On average, stocks in the S&P 500 yield about 1.3%. Among companies in the index that have paid a dividend for at least 25 consecutive years — known as "dividend aristocrats" — the average yield is 2.4%.

For younger investors looking to accumulate wealth, dividend payments are often reinvested. But many retirees also use dividends for income. If you have a well-diversified portfolio of high-quality dividend stocks, Dogen contends, you can essentially ignore the ups and downs of the stocks in your portfolio and focus on raking in the steady cash.

Know there will likely be some downs. To practice such a strategy, you'll have to be OK seeing the value of your retirement portfolio decline over multi-year periods.

Still, given the historical upward trajectory of the stock market, you can generally expect your stocks to rise in value over the long term. "Over 30 years, that compound return can be huge," Dogen says.

3. Real estate

Under the right circumstances, owning rental properties can be a terrific way to earn steady income in retirement, Dogen says.

"If you've owned rental properties for decades, they're generating huge cash flows, and you don't want to sell them, great," he says. "Plus, if they're close to your primary residence, maybe these are properties you want to give to your adult children or let them manage them to keep them close."

But if you're hoping to make money in real estate, it's key to remember that being a landlord is work — work that you many not necessarily want to do when you're supposed to be kicking back in retirement.

"It depends how good your property manager is. If you don't have one, it starts becoming less and less attractive," Dogen says. "Someone who is 60 or 65 owning property without a property manager, handyman, subcontractor, plumber, electrician is going to [have] a definite headache."

If you have the resources to essentially delegate the process of managing real estate, it might be a viable way to add guaranteed income to your retirement plans. If not, you'll have to ask yourself if earning more money is worth taking time out of your retirement to deal with the things that inevitably come up when owning a home.

"You'll probably make more than with an annuity from rental income and property appreciation," Dogen says. "But the headaches will grow greater because your time becomes more valuable as you age."

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