Pre-retirees’ Preparation for Retirement
Retirement planning refers to an individual’s long-term efforts in making plans for his or her retirement life. It covers preparatory activities in financial, health, social life, and psychological domains (Law et al. 2006). Financial planning, which is the cornerstone of retirement planning, includes the estimation of living cost after retirement, saving or investment, and consultation with financial advisors. Health planning concerns health maintenance, regular medical checkup, and health insurance. Social life planning focuses on post-retirement social and leisure activities, such as participation in social clubs or learning new hobbies. Psychological planning, which is relatively underexamined (Yeung 2013), focuses on the psychological preparation for adjustment to potential changes in late adulthood, for instance, participation in workshops or seminars on retirement, and discussion of retirement issues with family members or professionals. Retirement adjustment is defined as the adaptation to post-retirement life, and it is considered essential to the psychological well-being and life satisfaction of retirees (Reitzes and Mutran 2004; van Solinge and Henkens 2008).
According to the United Nations (2017), the global life expectancy raised from 48 years in 1950 to 72 years in 2016. With an increased life expectancy, the life after retirement is prolonged. Retirement is increasingly recognized as a process, instead of a one-off event, due to changes in the withdrawal patterns of labor force (Thang 2019). The retirement age in most Eastern and Western countries is in the 60s. Retirees experience substantial changes in personal resources in multiple domains, including financial, physical, cognitive, social, motivational, and emotional aspects, during the retirement transition (Wang et al. 2011). For example, retirees lose their social identity, self-worth, and regular income after retiring from a full-time employment (Wong and Earl 2009). They also face a number of uncertainties, such as adaptation to a new family role, and challenges of spending spare time meaningfully (Nuttman-Shwartz 2004). Thus, the smooth adaptation to this life transition is thus essential for maintaining well-being in old age. Research evidence demonstrates that individual differences in retirement adjustment can be explained by the extent of preparation performed before retirement (Muratore and Earl 2015; Yeung 2013; Yeung and Zhou 2017). Therefore, pre-retirement planning activities can help the retirees to maintain their levels of personal resources and prevent them from experiencing maladjustment after retirement (Yeung and Zhou 2017). Longitudinal studies conducted in Hong Kong Chinese retirees assessed the impacts of planning activities on retirement adjustment (Yeung 2013; Yeung and Zhou 2017). Relative to retirees with limited preparation, those who had performed diverse preparatory behaviors before retirement exhibited better physical and psychological well-being, greater life satisfaction, and less psychological distress and anxiety 6 and 12 months after their actual retirement. The advantages of retirement planning are also supported by the findings of a meta-analytic study (Topa et al. 2009). Nonetheless, not all pre-retirees engage in retirement planning.
Key Research Findings
Demographic and Socioeconomic Characteristics of Retirement Planners
Gender differences have consistently been observed in retirement planning. Past studies reveal that both Western and Asian female pre-retirees have less financial planning compared with their male counterparts (Chansarn 2013; Lee 2003; Mock and Cornelius 2007). Their lower degree of retirement planning, especially in the financial domain, is largely attributed to their lower salary than male employees (Perkins 1995). If planning activities are extended to non-financial domains, a reverse pattern is observed. In particular, female pre-retirees engage in more social life planning, such as planning for interpersonal and leisure activities, as they are motivated in achieving social goals and maintaining interpersonal relationships (Petkoska and Earl 2009). Another study conducted by Muratore and Earl (2010) further supports this gender difference. Specifically, female employees aged 50 and above put greater effort in developing new interests or skills, maintaining connection with friends or family, and engaging in leisure activities. In a telephone survey study of middle-aged Hong Kong Chinese adults, females were more likely to be involved in social life and psychological planning activities than their male counterparts (Lee 2003). The two gender groups also differed in health planning activities: Males prepared for the health domain by buying medical insurance policies and doing regular exercises, whereas females preferred quitting health hazard habits and performing regular medical checkup. These findings reveal gender variations in retirement preparation: Female pre-retirees focus on social and psychological domains, whereas male pre-retirees carry out more financial planning to prepare for their retirement.
In addition to gender, older pre-retirees often perform more planning for their retirement. Muratore and Earl (2010) compared the amount of retirement planning effort between two age cohorts [a younger cohort (aged 45–54) and an older cohort (aged 55–64)]. The older cohort of pre-retirees generally spent greater efforts in pension, attending financial planning seminars, and making superannuation fund contributions than the younger cohort. This difference is speculated to be caused by the great time urgency for retirement planning and increase of retirement goals in older pre-retirees. The positive association between age and financial planning is also observed in immigrant pre-retirees in Europe because older pre-retirees make contribution to the pension fund for longer years (Topa et al. 2012). In addition, a cross-sectional study in an Australian sample reveals that compared with younger workers, older workers tend to make a more comprehensive retirement plan covering multiple domains and are more thoroughly planned for the financial and interpersonal aspects (Wang et al. 2014).
Income is one of the crucial socioeconomic factors in determining retirement planning. A higher household income means that pre-retirees have more resources to perform financial planning. A national survey studying over 11,000 Thai working adults shed light on the economic preparation for retirement. Compared with employees with the lowest income (approximately USD640), employees with the highest annual income (approximately USD9600) had five times more opportunities to have an above-average economic preparation, such as more savings and property ownership (Chansarn 2013). Among immigrant workers in Europe, individuals with higher salary reported greater financial planning than their peers. Similar patterns are also shown in other studies conducted in Australia and the United States (Noone et al. 2012; Turner et al. 1994). Income not only predicts financial planning but also enables the pre-retirees to efficiently prepare for other domains, such as physical, mental, and social aspects (Wang et al. 2014).
Marital status also influences one’s preparatory activities for retirement. Previous research has indicated that retirement planning is often an interdependent process for dual-earner couples (Szinovacz and DeViney 2000). Married people have higher opportunities in having an above-average economic preparation for retirement and better adjustment than those who are single, divorced, widowed, or separated (Chansarn 2013; Kim and Moen 2001). The major reason is that the couples often share more resources for planning and provide emotional support to each other. Moreover, Mock and Cornelius (2007) investigated how relationship satisfaction predicted retirement planning among married and cohabiting heterosexual and lesbian couples. Relationship satisfaction was highly and positively predictive of both financial and lifestyle planning for homosexual and heterosexual couples. In sum, the couples with better relationship quality exhibit more planning activities than those who are not married.
Financial knowledge or financial literacy has been widely studied. It refers to one’s knowledge in financial domain. Evidence shows the link between objective financial knowledge and the degree of financial planning. Noone et al. (2012) found that Australians with good financial knowledge on superannuation and old age pension have a high level of financial planning. A similar pattern was also shown in European samples, including Germans, Dutch, Swedes, Swiss, and Italians (Brown and Graf 2013; Bucher-Koenen and Lusardi 2011; van Rooij et al. 2011). In addition to the objective measure, the subjective perception of financial knowledge can also predict an employee’s financial planning. Specifically, pre-retirees working in a US university carried out more financial planning (such as estimating retirement needs) if they had greater subjective financial knowledge (Mayer et al. 2011). Similarly, Chou et al. (2014) also found that Hong Kong workers, who perceived themselves as financially knowledgeable, had more retirement savings than their peers with limited financial knowledge.
Future Time Perspective
Future time perspective (FTP) represents one’s perceived amount of time remaining in the future (Lang and Carstensen 2002). When individuals perceive their time to be open ended, they are motivated to pursue goals that can optimize their future. Hershey et al. (2007) suggested that people with a high level of FTP generally have more awareness of their future. Thus, they are more likely to set financial goals to prepare for their retirement. In a study surveying Australian baby boomers (Noone et al. 2012), the relationship between FTP and retirement planning was examined. FTP significantly predicted planning activities, and its positive effect on financial planning was applicable to all pre-retirees with varying socioeconomic statuses. Likewise, Griffin et al. (2012) utilized subjective life expectancy to capture one’s perception of remaining time. Their longitudinal study reveals that subjective life expectancy is predictive of retirement preparation 12 months after the initial assessment. However, Petkoska and Earl (2009) did not find a positive association between FTP and various domains of retirement planning. They speculated that the Zimbardo Time Perspective Inventory (ZTPI) used in their study could not fully capture the futuristic time frame, resulting in an inconsistent pattern of the findings being observed.
Core self-evaluation is defined as one’s fundamental judgment of his or her self-worth and capabilities (Chang et al. 2012). It has been considered as a higher-order psychological construct, which consists of self-efficacy, self-esteem, and locus of control. Muratore and Earl (2010) revealed that pre-retirees with a more positive core self-evaluation tended to devote more efforts in planning for health, leisure, and social life after retirement. Similarly, Carr et al. (2015) demonstrated that personal evaluation of middle-aged adults in the United States, including self-esteem, mastery, and internal locus of control, is predictive of retirement preparation.
Some research suggests that the extent of retirement preparation is dependent on one’s level of job satisfaction. Kosloski et al. (2001) investigated the impacts of job-related satisfaction on retirement planning. Pre-retirees with higher intrinsic rewards, greater ascendancy, and more positive social relations were less likely to engage in any kind of retirement planning. Furthermore, a retirement survey conducted in New Zealand has demonstrated that pre-retirees who are highly involved in their work are less likely to think of retirement preparation (Noone et al. 2010). On the contrary, heavy job demand and negative work condition motivate working adults to perform more planning for their retirement. European employees with a demanding and stressful job often show a high level of financial planning than those with a lower job demand (Topa et al. 2012). A meta-analytic study revealed a moderate correlation between negative work condition and retirement planning (Topa et al. 2009), implying that pre-retirees who work in a negative environment may find retirement as a relief from high work stress, which in turn contributes to greater preparatory behaviors.
Past research has examined the relationship between health and retirement planning, though inconsistent patterns have been shown. On the one hand, Chansarn (2013) found that Thais with better self-assessed health often had greater economic preparation. Topa et al. (2012) also found a positive relationship between self-reported physical health and pension contribution. The presence of long-term illness makes pre-retirees more susceptible to less preparation (Wang et al. 2014). On the other hand, some studies fail to demonstrate a positive association between health status and retirement planning. For example, in a sample of Americans aged between 43 and 52, physical health behaviors, such as exercise and healthy diet, did not predict pre-retirees’ financial planning (Carr et al. 2015). The inconsistent findings may be confounded by the health care and medical protection across countries.
Family History of Illnesses
Limited research has been conducted on examining the effect of family long-term illness history on retirement planning. One study tested the association between a family history of Alzheimer’s disease (AD) and engagement in retirement planning activities. Pre-retirees who have parents with AD were almost two times more willing to meet with a financial advisor than other pre-retirees (Zick et al. 2016). However, the family history of AD did not influence pre-retirees’ estimation of financial needs for retirement. On the contrary, family history of breast cancer negatively influences retirement planning. Zick et al. (2015) made use of qualitative analysis to investigate the retirement planning of female pre-retirees whose mother or sister had been diagnosed with breast cancer. Compared with other women who do not have family members with breast cancer, women with a family history of breast cancer were less likely to engage in retirement preparation, such as meeting with a financial advisor or obtaining information for retirement life. Retirement planning possibly reminds them the high risk of developing breast cancer, making them more reluctant to plan for their retirement life.
Governments also play an active role in promoting retirement preparation. In some countries and regions, such as South Korea and Hong Kong, labor laws have been implemented to require employers and/or employees to contribute to the employee retirement fund (GovHK 2018; Kim 2018; Koh 2005). Moreover, some governments have taken initiatives to increase pre-retirees’ financial planning for retirement. For instance, the Government of Canada (2014) has introduced a range of online tools and financial education modules for Canadians to realize their financial needs and increase their financial literacy. Similarly, the Australian Government Department of Human Services (2018) offers free financial information service seminars to improve Australians’ knowledge on income security and accommodation planning.
Apart from financial planning, some countries have begun to assist pre-retirees in preparing other aspects of post-retirement life. For instance, the Seoul Metropolitan Government (2018) has launched the “50+ Renaissance Project,” which targets individuals aged between 50 and 64 years to perform three major aspects of retirement preparation, namely, learning and exploration, work and participation, and culture and infrastructure. Other services, such as life redesign education and counselling, are also provided to address the psychological needs of Korean pre-retirees. Social life planning can also be achieved through learning or participation in community and leisure activities. For example, the Hong Kong Labor and Welfare Bureau and the Elderly Commission introduced the “Elder Academy Scheme” in 2007, which aims to promote lifelong learning among individuals aged 55 and above (Elder Academy 2018). With funding support, senior adults can acquire new knowledge and/or develop new hobbies through attending short-term courses and education modules.
Most of the past studies often assessed the extent of retirement planning when the individuals have not yet approached their actual retirement. It is questioned whether more preparatory behaviors would be observed in employees who will soon retire. In a sample of 324 soon-to-retire employees residing in Hong Kong (i.e., who were going to retire in the next 6 months at the initial assessment; see Yeung (2013, 2018), for the sample characteristics), some of the individual variations in retirement planning described above, such as the effects of age, gender, marital status, and FTP, diminished. A few exceptions were also observed: The total preparatory activities across the four domains are greater in pre-retirees with better physical health (r = 0.12, p = 0.034). Compared with pre-retirees with lower income, those with higher income have more property investment (r = 0.18, p = 0.010) and living arrangement planning (r = 0.15, p = 0.036) and engage in regular medical checkup (r = 0.21, p = 0.003). Pre-retirees with stressful jobs tend to make more social life and psychological plans (r = 0.18, p = 0.010, and r = 0.15, p = 0.039, respectively), for instance, plan for post-retirement daily activities, watch television or radio programs concerning retirement, and read books about retirement. These findings imply that pre-retirees perform more preparatory activities when approaching their actual retirement.
Future Directions of Research
Retirement planning often narrowly focuses on preparatory activities in financial and health domains. Evidence shows that other planning behaviors, such as psychological planning, are also essential for successful adjustment to retirement (Yeung 2013). Therefore, future studies should broaden the examination of retirement planning to non-financial aspects. Meanwhile, inconsistency on the relation of retirement planning and some characteristics of pre-retirees such as health condition and future time perspective is observed. Future studies should be attentive in selecting the appropriate measurement to tap into one’s perception of remaining time. Cross-country differences on healthcare policies should also be considered when examining the association between health and retirement planning. Moreover, past studies mainly investigated the level of retirement planning in pre-retirees, without considering the timeline to their actual retirement. Future studies should therefore examine how preparation for retirement changes over the course of late middle adulthood. Governments are endeavoring in promoting retirement planning among pre-retirees. Future studies should compare the retirement adjustment between retirees of different pension schemes and education programs of retirement preparation to evaluate the effectiveness of these governmental initiatives.
When is the best time to start planning for retirement? The answer is yet to be known. In countries without mandatory retirement age (i.e., individuals can freely decide when to retire), such as the United States, one’s retirement preparation is often tied with their decision to fully withdraw from their full-time employment. In other countries with mandatory retirement age, such as Hong Kong and Mainland China, the schedule for retirement preparation may vary with the type of planning activities concerned. Some planning activities may be better performed earlier (e.g., savings and investments, regular exercises, and quitting bad habits), whereas other preparations can be performed shortly before the actual retirement (e.g., identify new hobbies for post-retirement life and read books or articles about retirement). Future research should also measure the age of starting planning activities to investigate whether retirees will adjust better if the preparatory behaviors are performed well ahead of their actual retirement.
Retirement planning in multiple domains facilitates a smooth adjustment and satisfactory post-retirement life. Some governments have taken an active step to motivate pre-retirees to plan for their post-retirement life through labor law legislation and education programs. Despite the apparent benefits and governmental initiatives, not all pre-retirees carry out planning activities before their retirement. Future promotion programs of retirement preparation should target those with minimal retirement planning, such as a younger cohort of middle-aged adults, unmarried and lower-income groups, and individuals with limited FTP and financial knowledge, poor self-evaluation, high work stress, and poor health conditions. The latest findings suggest that more efforts can be considered in future investigations on the longitudinal changes of retirement planning among working adults.
- Australian Government Department of Human Services (2018) Financial information service free seminars. https://www.humanservices.gov.au/individuals/services/financial-information-service/free-seminars. Accessed 27 Mar 2019
- Brown M, Graf R (2013) Financial literacy and retirement planning in Switzerland. Numeracy 6(2). https://doi.org/10.5038/1936-46126.96.36.199
- Elder Academy (2018) About Elder Academy. https://www.elderacademy.org.hk/en/aboutea/index.html. Accessed 27 Mar 2019
- Government of Canada (2014) Action for seniors report. https://www.canada.ca/en/employment-social-development/programs/seniors-action-report.html#tc3e. Accessed 27 Mar 2019
- GovHK (2018) Deduction for contributions to mandatory provident fund schemes and recognised occupational retirement schemes. https://www.gov.hk/en/residents/taxes/salaries/allowances/deductions/mpf.htm. Accessed 21 Mar 2019
- Kim S (2018) Spotlight on retirement: South Korea. In Asia Retirement Series Society of Actuaries. https://www.soa.org/Files/resources/research-report/2018/spotlight-retirement-south-korea.pdf. Accessed 21 Mar 2019
- Koh MJ (2005) Overview of Korean retirement pension plan. http://www.oecd.org/finance/private-pensions/34723005.PDF. Accessed 21 Mar 2019
- Law KWK, Wan P, Wong TKY (2006) Retirement planning. In: Leung SW, Wan P, Wong SL (eds) Indicators of social development: Hong Kong. Hong Kong Institute of Asia-Pacific Studies, Chinese University of Hong Kong, Hong Kong, pp 157–185Google Scholar
- Seoul Metropolitan Government (2018) A comprehensive plan for 50+ assistance. http://englishseoulgokr/policy-information/welfare-health-security/comprehensive-plan-50-assistance/#none. Accessed 27 Mar 2019
- Thang L (2019) Retirement patterns. In: Gu D, Dupre M (eds) Encyclopaedia of gerontology and population aging. Springer Nature, BaselGoogle Scholar
- United Nations Department of Economic and Social Affairs, Population Division (2017) World population prospects: the 2017 revision. https://www.un.org/development/desa/publications/graphic/wpp2017-global-life-expectancy. Accessed 10 Feb 2019