Dr. Daniel Crosby, Ph.D., President, IncBlot Behavioral Finance
What’s your perception of retirement? Will it be a bittersweet parting of ways with your professional career… or a fantastic reward for decades of hard work? As you weigh the decision to retire, you’re probably examining the trade-offs between retiring early to pursue leisure and working longer to accrue a larger nest egg. Financial stability and health are the two of the largest factors influencing preparation for retirement. Psychological preparation should shape that decision too.Research by the National Bureau of Economic Research captured the effect of retirement on both physical and mental health. Over the first six years of retirement, you’re likely to experience a 5-16% increase in difficulties with daily activities, a 5-6% increase in illness and a 6-9% decrease in mental health. It’s possible to mitigate, or even avoid, these effects. But, you’ll need a solid game plan to do it.
Prepare for…how you’ll make the decision
Many people spend years shaping a meticulous retirement savings plan. Yet, the decision to retire isn’t always a rational one. In a recent bulletin, the Social Security Administration (SSA) described why the agency educates adults about the benefits of later retirement. It’s not just about savings. The SSA is working to offset hyperbolic discounting; a factor in which the decision to take a larger, later reward is pitted against a smaller, sooner reward. When the reward is perceived to be far in the future, people tend to wait longer for the larger reward (in this case, larger Social Security benefit withdrawals). However, as the reward opportunity nears (reaching one’s retirement age), people shift their preferences toward smaller, earlier rewards.As you prepare for retirement, you will most certainly face this trade-off. Will you stay the course, and follow your long-term retirement plan, or will you take the first available opportunity to retire, even with smaller benefits and income? Impulsivity strikes often, particularly for those with less-than-satisfying careers. Be aware of how you’ll react once the retirement reward appears on the near horizon so that you make a rational decision.
Prepare for…changes in stressors
What made your blood pressure boil throughout your working years? While you’re leaving the workplace behind, retirement is not a stress-free experience. Work stress is frequently replaced by other stressors in your retirement life. Financial stress stems from the adequacy of your retirement savings, and it may spike with changes in market performance. The same happens if poor business continuity threatens the pension benefits you were promised. Health-related factors cause stress too. Whether you’re battling an acute illness, chronic illness, or end-of-life decisions, health issues take an emotional and financial toll.Prepare for…changes in relationships
Throughout your working years, you’ve probably spent more time each day with office colleagues than with your spouse or family. Retirement shifts the balance back in favor of your loved ones, but that transition isn’t always easy. When faced with an additional 8 to 10 hours of interaction each day, retired spouses find they must work on their relationships—easy interaction isn’t a given.Relationships are an important driver of mental health throughout your retirement years. Your ability to build friendships and to remain engaged with the world around you can help offset the depression that tends to affect retirees. Meaningful and engaging relationships offer personal fulfillment…and thereby stronger mental health.
Preparing psychologically for retirement requires an in-depth examination of your expectations about the retirement experience. It’s not all stress-free vacations and easy living. Take time to understand your own motivations to retire and how you’ll continue to grow outside of your work-related persona.
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