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expert's podium

What leads to a successful retirement?

Recently I spoke with Paul Merriman, a Seattle financial adviser who's been working with retirees for almost 50 years and is noted for his commitment to educating consumers in Seattle and beyond.

Having passed on the reins of his firm and now semi-retired, he is well-known for a 2005 article he authored titled "Ten retirement lessons from the smartest people I know."

In it, he wrote: "I've seen the good, the bad and the downright ugly. A successful retirement, like a successful life, rarely happens by accident or default. It happens by design."

Here are four of the things he has learned from clients who retired successfully:

The quality of your life is shaped by the quality of the people in your life.

First on his list is the importance of people's social network. In his experience, the happiest retirees are active and have many positive people in their lives, some older, some younger and some the same age.

"A parallel finding", says Mr. Merriman "is that satisfaction in retirement is driven much more by attitudes and behaviour than by the amount of money in the bank."

This echoes the evolving research on what drives happiness.

Earlier this year I spoke with Professor John Helliwell of the University of British Columbia, whose recent work has focused on the drivers of well-being.

"A key mistake for many people is overestimating the impact of material possessions and underestimating the effect of social connections," he says.

"So, people live in big houses too far from work, spend too much time commuting, are too exhausted to interact with friends … and then wonder why they're unhappy."

How prepared are you for retirement? Share your story with Globe readers.

Wealth comes from choices, not chances

Having said that money is not the be-all and end-all in determining retirement happiness, people still need enough money to enjoy retirement. Depending on the kind of retirement lifestyle one aspires to, that amount can be relatively modest or quite substantial, especially if they plan to travel, spend winters down south and eat out often.

"Smart people don't wait for luck to make them wealthy" is another key lesson Mr. Merriman has learned from clients.

"Successful investing means being thoughtful about making good choices, one choice at a time."

Mr. Merriman scoffs at the notion that you have to be brilliant to be a good investor - in his experience, it's getting the basics right that counts.

And he's openly critical of the financial industry for burying consumers in information, all too often leading to overload and paralysis as a result.

"There are only a few key principles to bear in mind," he says.

"Live below your means if you want to be wealthy. Watch out for a lifestyle that saddles you with expenses. Stay broadly diversified. And when you save and invest, make your money work hard for you."

Another key to success, in his view, is having a written plan.

"People who are serious write down their retirement goals. Putting plans in writing lets you identify where you are, where you want to go and what you must do to get there."

Control your emotions

Another key message is the need to control emotions.

In his experience, what really works in the long term is often in direct contradiction to people's immediate emotional impulses.

"When it comes to sex, food and money, emotions are our biggest enemy," Mr. Merriman says. "We start off with good intentions and then get lured away by quick fixes and easy solutions."

A classic example of the quick fix mindset is the surprising number of Canadians who in response to surveys list winning a lottery as part of their retirement planning strategy.

There are few certainties when it comes to investing; in Mr. Merriman's experience, the key to success is to tilt the odds in your favour by making decisions based on probabilities rather than possibilities.

Don't wait to start

A final message relates to starting to save early.

Among the things that keeps Mr. Merriman busy is teaching a high school class titled "How to get rich." In that class, he teaches that the least risky and most likely way to get rich is to start early.

Smart people learn early in life to defer gratification and make saving a priority. If you're in your 20s, retirement seems pretty remote, but time gives you an opportunity to get a lot for a little.

He uses this example: A one-time investment of $5,000 when you're 25 will grow (at 10 per cent annually) to more than $140,000 at age 60. If you wait until you're 45, you need to invest more than $30,000 to get the same result.

Canadians thinking about retirement have two choices: They can try to forge their own route or they can follow the proven path provided by those who have successfully gone into retirement before them.

And if that's your choice, a good place to start is the advice Mr. Merriman has gleaned from more than 40 years of working with the smartest people he knows.

More on retirement and pensions:

  • How not to outlive your money
  • Annuities: An option for any retiree
  • You won't live forever, so read this
  • Seven tools for rebuilding retirement savings