Of course, this doesn’t solve the problem it exacerbates it. People put it off and then as they get closer to retirement, it causes emotional burdens in terms of stress, anxiety and regret. So, once again instead of dealing with it, they put it off and hope that it will fix itself. Hence the retirement savings crisis we have today.
On the other side of the coin, people and relationships can get complex in retirement. Behavioral economics tells us that we don’t always make decisions that are in our best interests despite a desire to do so. Therefore, when people retire and take the first few months to settle in, they realize shortly after that life in retirement isn’t exactly what they thought it would be.
They aren’t talking to people at work any more so their social circle has shrunk, the grandkids are busier than they expected, and they aren’t walking every day or getting things checked off the infamous to do list. They have settled into this lifestyle that doesn’t exactly measure up to this amazing image they once had about it. They have discounted the value of things that work gave them and feel flat and out of sorts… and most importantly they don’t know why.
Retirement has suddenly become complex. The issue at hand is that no one told them they need a written non-financial plan to replace these things from work. As you might expect, just as complexity causes emotional burdens in traditional retirement planning, so too is the case here.
Clients can start to feel socially isolated, not valued or appreciated, and the worst part is, they don’t know who to turn to because once again, retirement is supposed to be this picture-perfect time of life. So, they suffer in silence and struggle to pivot out of the situation. Some return to work, others self-medicate, and some simply sit in front of the television all day.
The harsh reality is, that many clients have no idea that this can happen to them. Technically speaking, clients know that postponing financial decisions can carry future costs and be problematic, but no one has told them that not being proactive about the non-financial aspects can be just as devastating as well. It’s a secret we can no longer keep from clients.
I also want to add that I’m not saying that this happens to every client or that retirement is a bad thing. I’m simply suggesting that if we are going to use science and psychology to help clients become better savers or make better investment choices, then we should be applying the same logic to their everyday life in retirement.
Advisors need to know that when it comes to planning for everyday life in retirement, clients have poor and sometimes unrealistic assumptions about how they will use their time in retirement or replace their work identity. Additionally, they don’t realize that they need to develop a new skills and habits outside of those used at work to make the most of their life during this transition—skills and habits that include specific strategies to stay relevant, connected and physically active.
You as a trusted professional can have a major impact on how well clients can go from work life to home life. That means discussing things like behavior defaults, biases, loss-aversion, and temporal discounting when it comes to a client’s mental, social, physical and spiritual factors of retirement.
In essence I am talking about retirement literacy. Educating people on every aspect of retirement, which once again is one of the hallmarks of behavioral economics… the belief that people make better decisions when they have the right information, at the right time and with the opportunity to receive prompt feedback.