According to Harvard Professor Dan Gilbert (the guy in the new Prudential ads), life in retirement may not be what you imagine. Instead, it's better "to look at other people who are in the very future you're imagining." So let's have a look at what research has to say about retirement living to see whether it resembles our vision of the golden years.
Retirement is an abstract concept until it happens. You develop a routine of driving to work, interacting with coworkers, addressing challenges and finishing projects. Then you drive back home again, have dinner, relax, then wake up and go to work. But what happens when you quit your routine? How easy is it to establish new habits and take on new challenges? What do people actually do when they retire?
Financial advisors spend a lot of time helping clients become financially prepared for retirement. But retirement isn't just about money. It's about using the money to get the most out of a unique life stage that involves a huge increase in free time that needs to be filled, a greater reliance on social interaction, spending a lot more time with your partner (and, unfortunately, without for those who outlive their spouse) and predictable physical and mental decline.
This is a new area of research, but there are a number of studies that give us a much clearer picture of life in retirement. Understanding what others do in old age and what makes them happy can help us develop strategies that are most likely to result in a satisfying retirement.
There are two basic theories of retirement living. The first is continuity theory. According to continuity theory, retirement is a potentially stressful life change. If we try to maintain our environment—our home, city, friends, activities—then we'll be happier in retirement than if we try to break out of our routine too quickly. The second is activity theory. Starting anew forces us to break out of old habits, establish new routines, meet new people, and create a new lifestyle that isn't just normal life without the work.
The good news is that we have data that can help us test these theories.
What you do and how much you do it can have a big impact on retirement satisfaction. For those pining for a relaxed retirement, the news isn't good. A significant reduction in activity is associated with lower satisfaction (controlling for health effects). It is, in fact, better to burn out than it is to rust.
Those who listed maintaining an active lifestyle as a goal did much better. Active leisure activities and social contact, and in particular activities that require some skill but were not overly difficult, resulted in a more satisfying retirement. So don't watch TV, but do travel, exercise, meet regularly with friends, and engage in activities that require some (but not too much) mental and physical effort. And creating a routine, for example by volunteering weekly to help grade-schoolers learn reading skills, ensures that you won't forget to maintain rewarding mental challenges.
If you're more active, you tend to be happier in retirement. But part of this correlation is to be expected. Unhealthy, less active people often have to retire earlier and are not surprisingly less happy during retirement. It turns out that the strongest predictor of retirement satisfaction is almost always health. Making an investment in one's health, for example through regular exercise and a prudent diet, is just as important as investing money for retirement. As we'll see from other research, it may be even more important to invest in health and maintain close friendships and hobbies than it is to arrive at retirement with a stack of cash.
Retirement Stages
Some see retirement as a set of transitions that are affected by physical and mental decline, or the so-called "go-go, go-slow and no-go" stages identified in Michael K. Stein's The Prosperous Retirement: Guide to the New Reality.
These stages and their impact on projected retirement spending make intuitive sense. We start out retirement in good health and make the most out of it by traveling and enjoying life to its fullest; we begin to slow down as our bodies and minds become less capable of handling more vigorous activity; and finally we reach a stage where we become more dependent on others in advanced age. Studies of spending in retirement are consistent with the retirement stages idea. David Blanchett, head of retirement research at Morningstar, has identified a so-called retirement spending smile pattern where retiree spending is highest in the earliest and latest stages.
Research on time use backs this up as well. Both men and women increase their active leisure time in their late 60s and early 70s (things like playing golf, having lunch with friends, cleaning the house) but then begin cutting back after 75. Among active leisure activities, time spent on sports activities increased only by about 15 minutes and on hobbies by about 20 minutes on average between age 65 and 74 and then begins to fall again to near pre-retirement levels. So much for using retirement to while away the days sailing or working on your stamp collection.
What does increase? Passive leisure (like watching TV) and personal activities such as bathing, dressing and receiving medical care. In other words, the types of activities that do not tend to show up in financial services ads showing healthy, vibrant retirees surfing, playing golf or taking long walks on the beach.
It's also important to remember that wealthier retirees have more access to goods and services that help them spend more time in active leisure. You're more likely to walk on the beach if you live near one. You're going to be more social if you move into a retirement condo or have the means to eat at restaurants. There's no sailing if you don't have a sailboat. Given that a third of retirees get most of their income from Social Security, leisure opportunities might be limited.
Joseph Heider, managing principal for Rehmann Financial in Westlake Ohio, agrees that spending does seem to follow a predictable pattern. In early retirement, "they go through the phase of fulfilling their dreams, and that phase generally will last five to even 20 years." This phase is followed by a stage where clients develop a retirement lifestyle routine. "They're still very active," notes Heider, "but how many times can you go to the wine country in France?" Although they may still travel, "it's much more toned down, and it tends to revolve around family."
The later stage of retirement living often involves an inevitable decline in abilities and possibly the death of a spouse. "Because of physical or mental limitations," says Heider, "they tend to lead a sedentary life where they may get out a little bit from time to time, they still may be living on their own, but outside of health expenses their budgets tend to go down." Health expenses are what create the retirement "spending smile"—at least in the United States (other industrialized countries with pooled long-term health protection will see a "spending smirk").
Gilbert points out that our satisfaction with retirement may be related to the irreversible nature of the condition. If we decide to just slow down and take occasional part-time employment at age 65, we may not be as content with retirement because we are constantly reassessing our other options. Those who consciously choose to retire at a certain date and buy into the permanence of the new life condition may actually be more happy than those who choose to hold on to the possibility of rejoining the workforce.
