What science teaches us about making retirement decisions

decision making in retirement

I think it’s fair to say that most of us believe we are rational beings and we make rational decisions. I just finished reading a book, however, that calls that premise into question.

In Predictably Irrational, professor Dan Ariely uses cleverly designed experiments to show time and again that many of the daily decisions we make—from the mundane to the monumental—are completely irrational. His point is that these irrationalities are so systematic and predictable, that we can understand them and then compensate for them so we can make better decisions.

The section of the book that really caught my eye related to the concept of anchoring. Anchoring is our tendency to rely on the first piece of information we are presented with (the “anchor”) when making decisions. As the name implies, the anchor influences all of the related decisions that come after it. If you examine your life—how you spend your money, how you spend your day, where you buy coffee, who you hang out with, how much television you watch—you can likely trace those habits or repetitive behaviors back to some sort of anchor.

What does this have to do with making retirement decisions? Again, our first decisions on a particular matter tend to act as anchors for the subsequent decisions we make in that area. When you enter retirement you make a whole bunch of new decisions. Those decisions—the who, what, where, when and why of retirement—will resonate for years to come. You should be very intentional as you make them. Professor Ariely:

“We should also pay particular attention to the first decision we make in what is going to be a long stream of decisions. When we face such a decision, it might seem to us that this is just one decision, without large consequences; but in fact the power of the first decision can have such a long-lasting effect that it will percolate into our future decisions for years to come. Given this effect, the first decision is crucial, and we should give it an appropriate amount of attention.”

In other words, the first weeks and months of retirement are critical. Many people enter retirement with the best of intentions, but because they don’t understand this concept of anchoring, one of two things happens. First, they are so deeply anchored to previous decisions that when they are confronted with the new paradigm of retirement, they talk themselves out of things, even if it is something that they have been dreaming about for years. For example, “I’d love to travel, but that’s just not me.”

Second, they transition into retirement without a lot of intention or urgency and they assume that they will have plenty of time to figure things out as they go. But while they’re waiting for the dust to settle, they make decisions early on—the first 30 days, 60 days, a year—that end up acting as anchors for years to come and that prevent them from pursuing their ideal retirement. So what are some ways that we can avoid this fate?

Stop. I’ve talked many times before about a “stop doing” list. Never is that list more critical than when you transition into retirement. By cutting out old obligations that are no longer relevant to your new phase of life, you allow yourself space and breathing room to focus on your new pursuits, activities, obligations and commitments and give them the time and attention they deserve.

Shake things up. If you find yourself in a rut and anchored to decades of old habits and routines, it’s helpful to have big, new plans—like moving, traveling, or volunteering—that will force you to steer off the well-worn path you’ve become accustomed to and proactively pursue your new goals. If you don’t have specific new plans, it’s easy to fall into a routine that doesn’t look much different from your working years, save for sleeping in a little bit and having more time to run errands.

Keep a journal. As you transition into retirement, spend a little time at the end of each day journaling. Write about the emotions, feelings, experiences and changes related to the transition. Most of all, write about the decisions you’re confronted with. If you take time at the end of each day to think and write about those decisions in the context of what you want the next 20 or 30 years of your life to look like, then you’ll likely make decisions that put you on the path to where you want to go.

Have a response ready. When you retire, you will be confronted with a number of people and organizations that will want a piece of your newfound time and freedom. Rather than hastily committing to something you might later regret, have a ready response that defers any decision. Here’s the one I suggest: “Thanks for asking. You know, I’m new to this whole retirement thing and I’m still trying to figure out what my schedule will look like, so let me think about it and then I’ll get back to you.” If it isn’t something that fits with your plans, follow up later with a quick call or email to decline.

Remember, the decisions you make in the first weeks and months of retirement will resonate for years. Therefore:

  • Have specific plans.
  • Be intentional.
  • Have a sense of urgency.
  • Understand the resistance you’ll feel if your new plans conflict with your old anchors and be prepared to push through it.
  • Keep a journal to help you think through your daily decisions
  • Cut old commitments that aren’t a fit for your new phase of life
  • Be slow to make new commitments.

To all of my readers in the U.S., have a great Memorial Day Weekend!  And to those outside the U.S., just have a great weekend. 🙂

~ Joe

Photo by Nick Kelly.  Used by permission.

2 Responses to “What science teaches us about making retirement decisions”

  1. Patti May 26, 2015 at 2:26 pm #

    I love this whole concept. As a matter of fact I made up my own top 10 list for retiring! I wrote it as we were driving across country driving a 16′ moving truck. I completely agree with what you said, you have to shake it up when you retire otherwise what’s the point?! You’ll just fall back into your old routine and nothing will change. Change, in my opinion, is what retirement is supposed to be about!

  2. Joe Hearn May 28, 2015 at 11:18 am #

    Thanks Patti! You guys are definitely putting the concepts in this post into practice. I’d say hiking the Camino de Santiago definitely qualifies as “shaking things up.” 🙂

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