The Retirement Mind Game

By Dave Rao
Wednesday, November 14, 2018

Your outlook may influence your financial outcome.

What kind of retirement do you think you’ll have? Qualitatively speaking, what if the success or failure of your retirement begins with your perception of retirement?

A whole field of study has emerged on the psychology of saving, spending and investing — it is called behavioral finance. Since retirement saving is a behavior (and since other behaviors influence it), it is worth considering ways to adjust behavior and presumptions to encourage a better retirement.

Delayed gratification or instant gratification? Financially speaking, retiring earlier has its drawbacks and may lead you into the next phase of your life with less income and savings.

If you don’t love what you do for a living, you may see only the downside of working longer rather than the potential boost it could provide to your retirement planning (i.e., claiming Social Security later or tapping retirement account balances later and letting them compound more). If you see work as a daily set of unfulfilling tasks and retirement as an endless weekend, then your mindset will lead you to retire earlier with less money.

On the other hand, if you change your outlook to associate working longer with retiring more comfortably, you may retire later with a bigger retirement nest egg — and who wouldn’t want that?

If you don’t earmark age 66 or 70 as your retirement year, you can become that much more susceptible to retiring as soon as possible. At 62 years old, you can get Social Security, but you would receive less money than you would at age 66 or 70.

Resist the temptation if you can. While some retirees claim Social Security at age 62 out of necessity, others do so out of inclination, perhaps not realizing that inflation pressures and long-term care costs may render that a poor decision in the long run.

Social Security wants you to wait until you reach what it calls Full Retirement Age (FRA) to claim your benefits. For those born after 1942, FRA is around age 66. When you take benefits earlier than that, your monthly benefit payments are reduced by as much as 25 percent. That reduction is permanent.

Some people are misinformed about this. In a 2017 Fidelity Investments poll, 38 percent of respondents thought the reduction was temporary and that their monthly benefits would increase when they reached their FRA.

Before you turn 60 years old, setting a target age for retirement between age 65 and 70 may help mentally encourage you to keep working to that age. Providing your health and employment hold up and you can work longer, patience can lead you to have more Social Security income rather than less.


Dave Rao

Take a step back from your own experience. For some perspective on what your retirement might be like, consider the lives of others. You undoubtedly know some retirees; think about how their retirements have gone. Who planned well, and who didn’t? What happened that was unexpected? Financial professionals and other consultants to retirees can also share input, as they have seen numerous retirements unfold.

Reduce your debt. Rather than assume new consumer debts, which advertisers encourage us to take on, commensurate with salary and career growth, pay down your debts as best you can with the outlook that you are leaving yourself more money for the future (or for unexpected situations).

Save and invest consistently. See if you can increase your savings rate on the way toward retirement. Don’t look at it as stripping money out of your present. Look at it as paying yourself first on behalf of your future.


Dave Rao is the founder of RAO Wealth Partners. He focuses his practice on helping to advise physicians, corporate executives and business owners on their unique financial situations. For more information, visit raowp.com.