Forever young? The costs of preparation for retirement

The combination of increasing life expectancy and declining of retirement pensions is leading workers all around the world to take on a much higher responsibility for their retirement savings. Research shows that even a small amount of retirement planning results in a better economical situation in retirement, but a very low extent of retirement planning has been found. A possible explanation for this situation resides in the existence of planning costs. In our view, these costs may derive, among other aspects, from lack of time to plan, complexity of financial products, lack of financial knowledge and of specific skills, like numeracy, and anxiety associated with financial decisions. Therefore, the main objectives of this work were to demonstrate that psychological costs of retirement planning may significantly affect retirement planning and savings, to investigate the relationship between these costs and other variables with an important role in the retirement planning activity, such as retirement motivation, retirement affective valence and time perspective. Assuming savings behavior to be guided by impatience degree, we also intended to explore a possible effect of retirement context, and of language’s future time reference, on impatience. Our most important results are that psychological costs of retirement preparation emerge as a variable that can affect how people make their retirement decisions and must be addressed to overcome the difficulties people feel in planning their retirement. Women seem to feel more difficulty in planning retirement and are particularly at risk of not being able to maintain their living standard in retirement, which is of sizeable importance when we consider that women tend to live longer than men. We also found that retirement motivation and factors such as future time perspective and retirement affective valence play an important role in retirement planning, and that people with high psychological costs may present a heightened sensitivity to retirement context. Finally, our results suggest an effect of retirement context and work status in people’s impatience, and give partial support to time preference sensitivity to degree of future time reference in languages. Financial education programs developed to enhance retirement planning and savings can be helpful by offering financial and planning knowledge, but people often do not take full advantage of this kind of information. We consider that, in order to be effective, these programs should also aim at the reduction of the actual psychological costs of retirement preparation perceived by people and be adjustable, at least in some measure, to differences in aspects like retirement motivation, retirement affective valence, gender, work status and time perspective. In conclusion, more information about these issues is needed but we believe that, if taking into account individual characteristics and attempting to reduce the psychological costs of retirement preparation, these programs might become true facilitators of retirement savings and planning and, therefore, lead to a better quality of life in retirement.