The Psychology of Retirement

Earlier this year, the first baby boomer turned 65, and from now on, for years to come, 10,000 boomers will pass that milestone every day. That’s every day–which means that more than 69 million boomers will reach this symbolic age by 2030. So at this very moment, millions of working men and women are already wondering how to make the best decisions about retirement, specifically about how to finance the so-called Golden Years. Well, understanding human psychology may help–specifically the heuristic mind and irrational decision making. Here is a clear and helpful introduction to the psychology of retirement, by University of Chicago behavioral economist Richard Thaler, from Sunday’s New York Times. Thaler is also the co-author of the excellent book, Nudge, which explains how small policy changes can gently push people toward more sensible life choices, and in this piece he looks at the anchoring heuristic and choices about Social Security. According to Thaler, a mere 5 percent of eligible recipints delay taking their Social security benefits until after age 66 (the new 65). This is in part because of the very language of Social Security regulations–specifically the phrase “Full (Normal) Retirement Age”–which encourages people to start taking their annuity benefits earlier rather than waiting until age 70. The “Normal” in parentheses is part of the official language, and the effect of this phrase is to cognitively “anchor” us to thinking of 66 as the expected start of retirement–even though it’s usually advantageous to wait until age 70, when “Full” benefits really kick in. Such cognitive anchors restrict our flexibility in thinking about the start of the Golden Years as, say, 67 or 69 or even 70. A simple language change, Thaler suggests, could help alter Americans’ automatic thinking about the magic number 66, since for many boomers, stopping work at that “golden” age is no longer feasible.