Making the turn from work to retirement can be an emotional passage filled with fear and loathing. And understandably so. The face of retirement has changed radically in the last decade, as people live longer, healthier lives, and traditional pensions have given way to an often confusing array of investment and income-producing vehicles. Those who make the voyage are like pioneers charting new territory, and that can be unsettling.
There are few who understand the psychological components of this voyage better than Laura L. Carstensen, PhD, the director of Stanford University’s Longevity Center. A leading authority on aging, Carstensen is the author of several books, including A Long Bright Future: An Action Plan for a Lifetime of Happiness, Health, and Financial Security.
In a far-ranging discussion with Viewpoints, she describes why fears of aging and retirement are normal—but unnecessary, why older people are generally happier than younger people, and how to navigate the transition from work to retirement successfully.
Q: As a baby boomer and psychologist, how would you describe the mindset of your generation as it approaches retirement?
Carstensen: The very long lives that we're living are relatively new in a historical sense. In less than a century, we nearly doubled life expectancy. That is a stunning, stunning change. Now that’s good, but it’s also challenging because there are no real cultural guideposts—and that creates anxiety. We're creatures of habit and culture, and planning for our own retirements is very new. Just 50 years ago, most people relied on Social Security or a pension from their employer. They didn’t have to plan. They didn’t have to deal with their own money. Now they do.
Q: What’s so important about guideposts?
Carstensen: Humans are exquisitely sensitive to culture. That is, we look to social norms and other kinds of reminders that are built into the culture to decide when to get an education, when to get married, when to retire, when or whether to save and prepare for the long term. The big message is that we're missing those kinds of guideposts when we get to the second half of life. And that's because the second half of life, that is, 50 plus, is relatively new in and of itself.
Q: As we go through these uncharted waters, what are people’s most common fears?
Carstensen: Number one is old age itself. There are a lot of myths about aging. But I think the so-called misery myth may be the most pernicious. In that, people's conceptions of old age are so bleak, so disappointing, so dull and dreaded, that either they don’t plan or they plan for an imagined future self as if that person were a stranger sitting somewhere in a hallway in a wheelchair. And we don’t take very good care of strangers, not nearly as good care as we take of ourselves. So we need to overcome this tendency to mis-imagine the possibilities of old age.
Q: Is this a widespread phenomenon?
Carstensen: It is. When you ask young people to imagine themselves at 30, they can do that pretty well. They see themselves on the move, independent, and with more money. Then you say 40, and it's a little bit harder. You get up to 60, and they just go blank. They don’t have an image, but they have an uneasy emotional feeling.
Q: So what can we do to get over this fear of aging?
Carstensen: The straightforward thing is to better educate people about what life is like from, say, 75 to 85. But we've also been doing some creative work at Stanford, using virtual reality, to help people imagine their futures more realistically.
We bring students into a lab, where we take a photograph of them, and morph it into an avatar that’s either the same age or older. They then put on head gear and go into what looks like an apartment, where they wander around and look in the mirror, and they interact with themselves virtually, either at the same age or a more advanced age.
Afterward, we ask them a lot of questions about planning for and living in retirement. What we find is that those who have interacted with their aged avatars allocate twice as much money for retirement as those who have interacted with an avatar of the same age. We think virtual reality is one way to give people a visceral connection to themselves in the future.
Q: Why is thinking about the future so unsettling for people?
Carstensen: Humans, in general, have a really difficult time with ambiguity, with uncertainty. What if I go broke? What if I never find my soul mate? What if I get sick? What if, what if, what if? Those are difficult for people. But as it turns out, when bad things actually happen to individuals, they're generally pretty good at adapting. So helping people to sit down and face the realities of their financial future should be very good for them emotionally, even if it's not great news. Speaking as a psychologist, it would still be better to sit down, face the facts, and look at what is possible—and what is not—and begin to plan than to deny that session and just keep going. That way you can deal with underlying anxiety that's related to uncertainty.
Q: When it comes to retirement, what are the biggest mistakes you see people making?
Carstensen: Not planning or not planning well. When there's great ambiguity about a future, I think people tend to do two things. One is to not act at all, and the second is to act, but act very conservatively. And sometimes, as people enter retirement, or begin to think about retirement planning, they're actually being too conservative, both about what they want and about what they might be able to do with their investments.
Q: What can companies do to help?
Carstensen: When companies give people the choice of opting into retirement savings programs, employees frequently pass up very good deals, including generous employer matches. Economists think that this is because individuals are basically unmotivated. Psychologists take a different view: They think this opt-in approach communicates a social norm that saving for retirement is optional. If companies instead enroll all their employees in a retirement savings plan and let employees have the choice to opt out, they communicate a different norm—that this is a good thing that most people do. Again, that's how most humans decide what to do. So, I think that kind of opt-out process for retirement planning would be really useful.
Q: Once people are retired, what do you see as the biggest psychological hurdle they face in managing their money?
Carstensen: Just 50 years ago, many people had a pension from the company. They didn’t have to plan; they didn’t have to deal with their own money. Now this responsibility is being assumed at an individual level. So retirees are looking at their accounts and watching them get smaller, and it’s very unsettling. In psychology, this is called loss aversion. We don’t like to lose what we have
Again, people need guideposts. If you have a plan that lays out where your accounts should be when you hit 70, 80, and 90, you can know if you’re on target, and not in a losing position. I think that’s very useful, both financially and emotionally.
Q: Taking the first step is often the hardest. What can you suggest to help people get started planning for retirement or their transition into retirement?
Carstensen: Set up an appointment with a professional, and tell yourself: "I'm not going to leave that session until I have a discussion and make a plan.” So you can go away and think about it later, but you're going to leave with some kind of a plan. Once you start that process, I think the odds of finishing it will go up really dramatically. But it is hard to initiate the first step.
Q: What else can we do to conquer our fears and take that first step?
Carstensen: Think about the opportunities before you. Most people today who are reaching retirement age—let’s say sometime between age 60 and 65—are in reasonably good health,1 and they can anticipate at 65 an average life expectancy of 18 more years.2 Of course, that’s only an average and many people can anticipate living a lot longer. So, you want to begin to think creatively about what those opportunities are. What do you want to do? Perhaps you like traveling, or spending time with grandchildren, or helping them get through college. You want to frame your decision-making process to help you articulate those really interesting and meaningful goals—as opposed to thinking “I better get in there and start planning or else I’m going to lose every dime I’ve got.”
Q: So, you bring forth in your mind's eye your next big goals?
Carstensen: And the really fun, and interesting, and satisfying things that you can do.
Q: And work may be part of that?
Carstensen: I find it hard to believe that people aren't going to work a lot longer in the next 10 to 20 years. Most people who are 65 or older, healthy, educated, and talented have some expertise, and really want to use that. A lot of people enjoy their work, and their identities are very much rooted in work. So I think, going forward, we will see many more people work longer, especially if they have the ability and financial flexibility to work part time or take time off, then reenter the work force. That will be good for not just for their financial futures, but also for their emotional well-being.
Q: Some people think that older people should leave the work force to make room for younger ones. Is that a legitimate concern?
Carstensen: Empirically, it's false. The more people in the workforce, the more jobs. It’s not a zero-sum game. When people are engaged and work, they go out, they have income, they buy products, they spend more, and they create new jobs. People 50 and older are the most likely people to be employing other people.3 There have been cross-country comparisons showing that the economies where people retire early show more cognitive decline than economies where people work longer. This notion that older people working are taking jobs from younger people is a very sad misperception.
Q: Beyond money matters, are people happier as they age?
Carstensen: Yes, by almost every measure. Younger people are more likely to have these alternating state of extreme happiness and extreme sadness; older people regulate those states better so they're not at either extreme. That's good for mental health. Psychologists call this the positivity effect, and it is a nice change. People stop and smell the roses. They don’t hold grudges. They look at the good side of people more than the bad side. But, when you’re making decisions, say about your finances or your health care, it's better to take a cold hard look at the good, the bad, and the ugly—not just at the good. So, it’s important as you get older to slow down and make a concerted effort to sort through the pros and cons of important decisions.
Q: What do you think is the key to making the second half of life as rewarding as possible?
Carstensen: Envision it in a realistic way.
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