I’ve always dreamed of retirement as a kind of magical place where late mornings in bed are a regular occurrence and indulgent beach vacations are just a quick plane ride away. But with post-financial crisis realities, longer life expectancies, and largely insufficient savings, the reality of retirement for most Americans has shifted notably- leaving many anxious about their golden years, rather than looking forward to them.
A 2014 survey by the Employee Benefits Research Institute showed that only 18 percent of workers reported feeling “very confident” that they’ll have enough money to afford a comfortable retirement, 37 percent reported feeling “somewhat confident,” and 24 percent were “not at all confident”.
Among those workers reporting inadequate retirement savings,36 percent reported less than $1,000 in savings and investments.
Shifting Retirement Mentalities
Even with a reduced cost of living in retirement, those small savings numbers are beyond insufficient to support the average American through his or her golden years. As such, the retirement narrative has largely shifted from a positive free time fantasy to a notably negative, anxiety-producing problem.
According to a report released by the Institute of Economic Affairs in 2013 , retirement increases the risk of clinical depression by 40 percent. While several factors like inactivity and isolation are largely responsible for that deterioration, financial anxiety and the fear of outliving of ones money also come into play.
While it’s undoubtedly important to be realistic about the financial realities of our post-work years, perhaps we could benefit from adopting a more positive retirement narrative. Ditching the negative stigma currently surrounding retirement- “I’ll never be able to save enough,” “I’m just running out the clock and my money,” etc.- may help us make more proactive and positive choices today.
With retirement as a desirable end goal, perhaps retirement savings can become as much a personal priority as a financial priority – affording us all the “fantasy” of late mornings and impromptu beach vacations.
Roots of the Negative Retirement Narrative
Negative retirement narratives are adopted early on, often without realization, and long before the stress of impending age targets and cut offs.
In one study, researchers showed college-aged participants a digitally altered image of themselves at 70-years-old while control group participants were shown a photo of their present self. Researchers found that participants who were shown the photo of their future self saved twice as much money in a retirement account than the control group.
“To people estranged from their future selves, saving is like a choice between spending money today or giving it to a stranger years from now.”
Researchers have worked to find solutions for averting this early adoption of the negative “stranger” mentality surrounding retirement- studying ways to make the future self a positive part of the present so as to encourage sufficient retirement planning.
“Presumably, the degree to which people feel connected with their future selves should make them realize that they are the future recipients and thus should affect their willingness to save.”
They found that when study participants saw similarly age-processed images of other people, it did not affect their allocation to savings, but when they saw aged images of themselves they saved more for that future.
This method of incorporating the future into ones present- either through visual cues or goal setting and visualization- can keep individuals at every stage of retirement planning on track.
Strategies for Positive Retirement Planning
- Specify Positive Goals
To avoid the temptation to overspend in the present, keep in mind the benefits of future uses of money- traveling abroad, spending on loved ones, etc. Specifying tangible future goals that make you happy can help maintain the momentum and motivation for saving in the present.
- Predict Your Future Needs
The aging study shows us that the more we can relate to the future, the more connected we are to the reality of it, and the more likely we are to prepare for it financially. Use present and past trends of inflation and annual cost of living increases to positively predict future financial needs.
Budgeting is just as much a tool for the present as it is for the future. To ensure that present spending doesn’t exceed earnings, use the right financial tools- like Personal Capital’s finance tracking app, proven to reduce spending by an average of 15.7%. Money can be set aside now for positive, future retirement goals.
- Use Commitment Devices
The challenge of saving a large sum of money, like that needed for retirement, is much easier to digest when broken down into small pieces and defined by the day-to-day actions needed to achieve the larger future goals. Track progress using Personal Capital and celebrate each small milestone made on the way to a bigger financial goal.
- Keep it Simple
A great deal of the research on retirement planning demonstrates the tendency of workers to follow the “path of least resistance.” With the decline of defined pension plans and other default retirement savings options however, more onus is now placed on the individual to take responsibility for his or her own personal retirement funding. Keep it simple by setting up automatic withdrawals from each paycheck into retirement savings and growth vehicles.
The tools and team at Personal Capital can help individuals conquer the common hurdles that impede delayed or insufficient retirement planning like procrastination and choice overload, ensuring that positive future goals are met.
Reframing Retirement Itself
The remaining life expectancy for the average man and woman when eligible to receive Social Security at 62 is 21.8 and 24.3 years, respectively. Considering this increased longevity, perhaps it’s not only retirement planning that needs to be reframed into a more positive narrative but the entire notion of retirement itself.
With the numbers on deteriorating mental and physical health among aging retirees, it may be beneficial to dismiss the idea of retirement as a total departure from the work force and adopt an alternative approach of claiming retirement benefits in conjunction with a scaled back or part time work load. Not only would this kind of “modern retirement” provide an additional income stream for today’s generations who are living longer, it would also offer retirees a positive purpose and social environment.
Working retirees typically report feeling happier and more fulfilled than those who sit idly after leaving the work force. These working “retirees” aren’t necessarily working in the same capacity as they were during their peak professional, pre-retirement years, but they are negotiating schedules and benefits that meet the financial and personal needs of their new life stage.
By positively reframing retirement savings and even rethinking the entire notion of retirement itself, the steps needed to achieve future financial stability and psychological happiness can be translated into concrete action, urgency, and priority in the present- leaving all of us better off, regardless of what kind of retirement we choose. Spend some time inputting your own numbers in our new Retirement Forecast Calculator to see where you stand.
Photo Credit: Pranav Babu Photography, An Eternity With You Is Still Not Enough