As a researcher, one of the questions I study is how to get people to save more money for retirement. It turns out that even defining what retirement actually means is easier said than done. The dictionary defines it as “the action or fact of leaving one's job and ceasing to work.” However this definition ignores the planning, the aging, the life-transition, the dramatic change in outlook and aspirations, and the lengthy period of time spanning decades that are all part and parcel of retirement today. The definition also overlooks the rich and complicated cognitive, emotional, motivational, and behavioral processes involved. Although it is one of life’s milestones, retirement also unquestionably includes what happens during and after people have ceased working for money.
A richer, more nuanced definition of retirement is warranted. In this post, I want to explore four distinct psychological ways to think about retirement.
Many financial experts view retirement as a goal that has to be set, pursued, and achieved over the decades of one’s working life. With this perspective, retirement is the point at which the person has accumulated enough financial resources to sustain themselves for the rest of their lives.
A person carefully and deliberately plans for retirement. Numerous studies have shown that when individuals are clear about their saving goals for retirement, they are better able to perform the requisite actions, solicit and use appropriate expert advice, and enlist social support from others to move forward to reach the goal.
When retirement is an important life-goal, the individual's self-control is the key to attaining it. People want all the help they can get to exercise self-control, say by making retirement savings hard to withdraw and use for other things, or sticking to monthly spending budgets, month after month. A person can reach the retirement goal at any age. They can engage in “extreme saving,” adopt a frugal lifestyle, lower their required resources, and achieve retirement even in their thirties. Once the retirement savings goal is reached, people need not stop working. And afterwards, the question of what to do during retirement becomes more significant.
A second, different way to think about retirement is as a lifestyle that people adopt or fall into typically in their late adulthood. They may or may not sufficient financial resources. Retirement is marked by changing habits as the person transitions away from a work-focused lifestyle, and adopts a constellation of behaviors that help or hinder physical and mental well-being.
Why? When a person retires, their entrenched habitual patterns of behavior are uprooted. If they have worked full-time, they now have to create a new lifestyle that involves activities other than work. This momentous change gives them the opportunity to break old habits and form new ones of all shapes and forms. Research shows that after retiring, people are more likely to quit smoking, engage in more physical leisure activities such as walking, playing sports and exercising on a regular basis, and adopt a healthier diet (although this last effect was only found for women). What is more, learning a new skill such as making pottery or playing a musical instrument can play a significant role in combating age-related physical and cognitive challenges.
On the negative side, more than one study shows that retirees also tend to increase their alcohol consumption, and are likely to engage in bouts of heavy drinking more often, particularly when their retirement has been involuntary. Not surprisingly, they also become more sedentary. For instance, one study of French retirees found that they doubled their TV watching time after they stopped working.
What is the net effect of the lifestyle reshaped by retirement? No clear evidence tilts one way or the other. The effects differ from one person to another. Viewing retirement as a lifestyle provides an important insight: Retirement is marked by a once-in-the-lifetime opportunity to turn a fresh page, give up entrenched bad habits and take up new ones. These choices affect the quality of life and happiness experienced by retirees.
Because of increasing longevity, a third way to view retirement is to see it as a process that now spans several decades for many people. Social scientists have divided retirement into three stages: an early, active stage (65-74) when most people are in relatively good physical health, a middle, exploratory stage (75-84) when they have gotten used to not working, and often take up new interests and pursuits, and the late, supported stage (85+) when physical and cognitive health starts to decline, and assistance (assisted care, nursing care) becomes necessary.
The division of retirement into such stages is particularly relevant where financial issues are concerned. It means that people won’t spend the same amount every year after they retire. In the early stage, their expenses will be relatively higher as they move to a different part of the country, take vacations, etc., then taper off in the middle stage as their life becomes more stable, and increase again in the last stage as medical and assisted-care expenses increase. Financial investments have to account for these changes. The distinction is also relevant for the factors that contribute to the person’s well-being. What makes someone happy when they are 65 or 66 will be quite different from what causes happiness at 95 or 96.
The fourth way to think of retirement is as a mindset, or a cognitive orientation that determines how people gather information, process it, make decisions, and evaluate the consequences of their actions. In retirement, there are two opposing cognitive forces at work for people, one that is positive and optimistic, and the other which is negative and debilitating. On the positive side, retirees have a greater sense of autonomy and control because they no longer have to work for money. This is especially true for people who have retired voluntarily at a younger age. One 2015 study of 2000+ retirees found that over 80% of retirees indicated being happy, enjoying life and having a strong sense of purpose. The accompanying retirement mindset allows people to learn new things and to enjoy themselves.
At the same time, there is uncertainty and concern about the future, and a sense of disempowerment, especially as one's health deteriorates and the person transitions from independent living to assisted living and then to nursing care. Many retirees also suffer from acute loneliness and experience a sense of alienation. These negative aspects of the retirement mindset affect how retirees make decisions. To give just one example, elderly consumers are the most susceptible to frauds and scams, often because of their need to alleviate loneliness and feel valued, and sometimes because of cognitive impairment.
Each of these four perspectives about retirement gives unique and useful insights into experiences that we will all face now or in the future in our years of late adulthood.