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Rust in retirement can affect finances

Dollar Puzzle

By Joel Dresang

When we retire, we leave behind more than a job, more than a desk chair indelibly contoured to our proportions, more than a cadre of 9-to-5 companions. It turns out many of us leave a bit of our minds.

“Retiring is associated with increased risk of cognitive decline,” says a report from the American Psychological Association.

Retiring early can be bad for the brain,” echoes a research brief by an economist affiliated with Harvard University and the University of Chicago.

Both reports are from 2020 and suggest further research is necessary, but both are built on other studies that raise flags about how we prepare for retirement. Of course, we need to plan financially for the years (perhaps decades) after we leave work. But more evidence points to the necessity of having purposefulness in retirement.

“Retiring early and working less or not at all can generate large benefits, such as reduced stress, better diets and more sleep,” writes the economist, Plamen V. Nikolov. “But as we found, it also has unintended adverse effects, like fewer social activities and less time spent challenging the mind, that far outweighed the positives.”

The psychology study, based on data housed at the University of Wisconsin-Madison, spots cognitive decline particularly among people who disengage from challenging activities and pursuits at work and then don’t replace them in retirement.

“Work environments commonly require individuals to engage in executive functioning tasks and necessitate the frequent use of episodic memory for deadlines, appointments, and social interactions,” the psychologists write. “Finding substitutes for these mentally stimulating work activities represents an important task for retirees.”

In other words, there’s a use-it-or-lose-it risk with some of the brain benefits we get from work. As Nikolov puts it, “In short, we show that if you rest, you rust.”

Warning signs of diminished financial capacity

  • Trouble paying bills
  • Difficulty doing simple math
  • Depleted savings accounts
  • Falling victim to scams
  • Disorganized checkbook
  • Unexplained purchases
  • Serious credit difficulties
  • Inappropriate investments

National Endowment for Financial Education; University of Alabama at Birmingham

Cognitive health is vital to our financial well-being in retirement. After our 50s, skills most essential to managing money begin to decline. Everyday math can get more challenging, completing tasks from a list more difficult, understanding financial concepts like interest rates more blurred. By our 80s, about half of us can expect to be diagnosed with a cognitive impairment.

Nobody’s saying that working forever will preserve your brain. Declines are common with the aging process. But researchers are finding that staying engaged in retirement — pursuing other purposeful activities — can have many benefits, including financial.

“Participants who reported a higher sense of purpose had higher levels of household income and net worth initially and were more likely to increase on these financial outcomes over the nine years between assessments,” a team of psychologists writes in the Journal of Research in Personality.

Besides linking sense of purpose with higher self-reported wealth, scholars also find that purpose fosters long-term thinking — a critical trait for successful investing.

“The notion that having a sense of purpose in life is implicated in lower levels of impulsivity I think illuminates the long game that purposeful individuals might be playing.” Anthony Burrow, a psychologist at Cornell University, says in an interview. “They’re thinking about not the here-and-now but about saving, about generating more for later.”

By being less impulsive, investors would be less inclined to jump in and out of financial markets at the wrong times — selling low and buying high — instead of sticking to their plans and staying put.

The good news from researchers is that retirees can keep their brains engaged after leaving work in ways that can help slow their cognitive drop-off.

“Retired individuals showed steeper declines in sense of purpose, but this effect was mitigated among participants reporting greater activity engagement,” say psychologists in the journal Psychology and Aging. “Leisure activity participation may help to support sense of purpose in life.”

Other Money Talk articles from Joel Dresang

Midlife in the United States, an ongoing study based at UW-Madison and funded by the National Institute on Aging, suggests research-backed activities that can help improve sense of purpose.

Volunteering – Adults over 65 who were no longer employed, no longer married or no longer raising children were able to preserve their sense of purpose through new social roles as volunteers engaged in meaningful activities.

Supporting friends – Such social connections can help retirees feel needed and useful.

Belonging to groups – Individuals can feel more purpose among others with similar values pursuing common goals.

Being religious – Religion can help those with stressful friendships by providing relationships with divine beings and by offering beliefs that can serve as purposeful world views.

Fielding teamwork – Workers who feel support from colleagues can have a greater sense of belonging, which is tied to having purpose. Although the research focused on people still working, perhaps similar activities would help retirees.

Using skills – Workers with high levels of skills who use their expertise to complete tasks are more likely to feel purposeful. Again, these findings were specifically for workers, but they suggest implications for retirees.

In discovering this research, I’ve thought about how I never considered the purposefulness of my job to my retirement beyond the money it’s allowing me to sock away in my 401(k). Like Danny in “The Karate Kid,” I’m realizing that seemingly mundane activities have greater value beyond my narrow near-term view.

It’s helpful to know that my workaday equivalents of Danny’s waxing on and waxing off can have brain-saving powers when I enter the arena of retirement. And now I can be more mindful of eventually replacing job-related activities so I can keep my head together as long as possible.

Joel Dresang is vice president-communications at Landaas & Company.

Learn more
Purpose in Life, from Midlife in the United States
Advancing age, declining capacity, by Joel Dresang
Trusted contacts for your sake
Naming beneficiaries: Communicate clearly, a Money Talk Video with Mike Hoelzl
(initially posted June 30, 2022)

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