The Psychology of Planning the Golden Years
Earlier this year, the first baby boomer turned 65, and from now on, 10,000 boomers will pass that milestone every day. That’s every day–which means that more than 69 million of us 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 actions by changing their default positions, and in this piece he looks at the anchoring heuristic and choices about Social Security. According to Thaler, the very language of Social Security regulations–specifically the “Full (Normal) Retirement Age”–encourages people to start taking their annuity benefits at age 65 (now 66 for many), 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” to this notion of what’s expected, even though it’s usually advantageous to wait until age 70, when “Full” benefits really kick in. We need to change our automatic thinking about the magic number 65, which has come to symbolize the start of retirement, because for many boomers, stopping work at that “golden” age is no longer feasible.
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