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4 of the top psychological hang-ups in retirement planning

When you picture your life in retirement, you may envision the activities you will be doing, the places and people you鈥檒l visit and what new hobbies you will learn. But what about your income needs? When you visualize your future self, do you have the money you need to maintain your lifestyle and live the retirement of your dreams?

Planning for retirement is full of unknowns and it can feel overwhelming to try to predict how long your savings will last or what the market will look like when it鈥檚 time to retire. This lack of clarity can cause many of us to come to a standstill and miss out on important opportunities to create a more secure financial future. Fortunately, understanding the common psychological hang-ups that can get in the way of our retirement planning progress can help clear the way to finding the right solutions. 

In partnership with behavioral experts, Hal Hershfield and Craig Fox from UCLA Anderson School of Management, we鈥檝e identified four common retirement planning uncertainties and how you can overcome them.

1. How long will I live?

One of the most important retirement planning questions 鈥� and the hardest to predict 鈥� is determining how long we鈥檙e going to live. When there鈥檚 no way of knowing the length of our lives, it can feel impossible to estimate the amount of income you鈥檒l need, how long your savings should last or which investment strategy makes the most sense. Along with these issues, people tend to have an understandable aversion to the topic. 鈥淚t鈥檚 difficult to grapple with these questions,鈥� says Hal Hershfield, professor of marketing, behavioral decision making and psychology, UCLA Anderson School of Management. 鈥淧eople tend to avoid thoughts of their own mortality or planning around it.鈥� By trying to set fear aside and changing your perspective, you can look at retirement planning as a positive experience and an important exercise in creating insurance for your future.   

2. How much money will I need?

Estimating how much is needed for a summer vacation can be challenging, let alone predicting the amount of monthly income you will need in retirement. As you think ten or twenty years down the road, some costs may be easier to estimate, like your mortgage, car payment or utility bills. Others, like health care or travel expenses, may be impossible to calculate with confidence. Not having all of this information can lead many of us to experience 鈥渇uture discounting.鈥� 鈥淧eople notoriously have a difficult time figuring out how to value future outcomes relative to present ones. There鈥檚 a strong tendency to put more value on consumption now than in saving for an uncertain future later,鈥� Hershfield says. 

Discounting how much money will be required to cover your income needs in retirement can leave you largely underfunded, especially as the cost of gas, food and other necessities will likely be higher due to inflation. Plus, unexpected health issues or medical costs can quickly cut into savings. To overcome this tendency to underestimate future spending, it鈥檚 important to build a stronger emotional bond with our future selves. This means picturing yourself in retirement; what are you doing and who is there with you? What can you do now to ensure that next chapter is a fulfilling one? 

3. How do I choose the 鈥渞ight鈥� investments?

When creating a financial strategy, many people seek solutions that can maximize their savings, while minimizing their chance of losing money. While these goals are important, it can cause us to lose sight of important issues, like generating enough income to last throughout retirement. Add in misconceptions about certain financial products and wariness of the stock market and financial institutions and it can be challenging to approach retirement planning with confidence. 

To help remove these roadblocks, seeking the help of a trusted financial professional can provide an objective viewpoint and help clarify your investment options in simpler terms. Together you can explore the benefits of creating a diversified portfolio, which can meet a variety of needs. For example, adding an annuity to your financial plan can ensure you have monthly retirement income you can count on, while giving you the financial freedom to pursue higher risk growth opportunities.

That said, annuities may not be right for everyone. 鈥淎 financial professional can help you determine if an annuity is right for you,鈥� Grady says. 鈥淚f it is, they can help you choose the option that鈥檚 most suitable for your situation.鈥�

4. Am I making the right decision? 

Let鈥檚 face it; making a choice can sometimes feel daunting, and when you feel ill-equipped to make the right decision, you may end up making no decision at all. This can be especially true when it comes to retirement planning and not feeling confident in our knowledge of retirement savings solutions and how to narrow the list down to our best options. 鈥淵ou can experience anxiety when faced with too many choices,鈥� Hershfield says. 鈥淭hat鈥檚 a classic form of decision uncertainty.鈥�  
 

Preparing for retirement is partly about planning for the unknown, and by finding ways to feel more comfortable with that uncertainty, you can take the steps necessary to improve your financial security for the future. Adding lifetime income solutions like an annuity to your retirement plan can provide a guaranteed 鈥渞etirement paycheck鈥� that helps fill income gaps and helps you cover both planned and unexpected expenses. As you look ahead, remember that every small step you take today can have a positive ripple effect on your future well-being.

Take our quiz to better understand your retirement personality and priorities.
 

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