“Anna, you’re wanted in the principal’s office.

I remember how, as an 8-year-old, that “invitation” brought a wave of emotions. Was I about to receive good news or bad? But during the walk to the office, my mind tended to focus on the unfavorable possibilities.

More often than not, an imagined possibility is worse than the reality.

The same can be said about retirement. In a new Vanguard study, pre-retirees expressed less satisfaction with their expected postretirement financial situation than recent retirees actually experienced. With similar financial assets and only a few years apart, what is it about the transition to retirement that so divides the anxious pre-retiree and the relatively contented recent retiree?

While various reasons for the disparity are likely, I suspect that managing uncertainty is one of them. For some pre-retirees, uncertainty may be due to a lack of understanding of where they’ll stand financially in retirement. They don’t know if the news will be good or bad.

At another level, trying to prepare for unknowns may be the issue. And yet, we find uptake of the most basic retirement income planning steps to be similar between the two groups.

More important, just more than half of pre-retirees and recent retirees took retirement planning steps before retirement, with less than half planning how they’d generate retirement income.


Incidence of basic retirement planning

(Percentage taking specific steps by retiree status)

Source: Retirement transitions in four countries. Anna Madamba, and Stephen P. Utkus, Vanguard Center for Investor Research, Vanguard, January 2017.


How does this relate to the discrepancy in expected satisfaction among pre-retirees and the expressed satisfaction of recent retirees? When we actually transition into retirement, we’re required to face, head-on, the decisions we need to make and the realities we need to address. We’re forced to take stock of our situation and adjust accordingly—even if that means lowering expectations.

So how can we help pre-retirees reduce uncertainty in advance of this transition? Getting a handle on their financial situations could help mitigate any social, emotional, and psychological adjustments that may follow an exit from the labor force. Planning early improves financial preparation. This implies a need for scalable advice to broaden and deepen retirement planning for future retirees, so that they don’t dwell on possible negative outcomes.

Plan sponsors and financial institutions are in a position to provide advice, which could especially benefit individuals who don’t engage with financial advisors. Personalized managed accounts, retirement income projections, and simple retirement income defaults and payout options could ease pre-retiree planning. Digital delivery would extend the reach of such services to a broader audience at a lower cost.

As for my visit to the principal’s office: It turned out to be a postcard (remember those?) sent by my father during one of his trips overseas. This practice eventually became customary whenever he traveled. Nevertheless, whenever I got “the call” after that first time, I still couldn’t shake that initial wave of nervousness, thinking “What will it be this time?”



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