Home / Opinion / The psychological need behind controlling your retirement

Many retirees are attracted to the notion of self-managing their nest eggs – a bid to find self-worth in retirement. It can be a poor choice.

Transiting to retirement is not just a financial change – it’ s a profound psychological shift. Many retirees find themselves at a crossroads, grappling with the cessation of a regular salary and facing the vast, often intimidating, ocean of managing their retirement funds.

Despite not having the skills, knowledge or experience in financial management, a significant number of retirees, especially males, are drawn to the idea of self-managing their capital. This decision, while seemingly counterintuitive, is deeply rooted in psychological factors associated with the circumstances of retirement.

During our working lives, individuals rely on a regular income to manage their daily needs, save for the future, and invest in their dreams. The end of this steady income stream on retirement marks a significant psychological shift. Suddenly, the safety net of regular income is gone, replaced by a finite pool of savings meant to last an unknown lifespan. This transition can invoke a sense of loss of control and anxiety about the future, compelling many to take the reins of their financial management.

Control is a fundamental psychological need. It gives individuals a sense of security and efficacy in their lives. When faced with the uncertainty of how long their retirement funds need to last, taking direct control of these funds can provide retirees with a semblance of power over their future. It allows them to make decisions they believe are in their best interest, providing a psychological buffer against the unpredictability of longevity and market fluctuations.

Retirement can also trigger a shift in identity. For many, work is closely tied to their sense of self. The act of managing their own finances in retirement can serve as a new domain for personal achievement and self-definition. This endeavour allows retirees to maintain a sense of competence and independence, qualities highly valued.

Managing their own capital also allows retirees to remain intellectually active and engaged with the world around them. The challenge of learning new skills and the ongoing need to make informed decisions can provide a stimulating and rewarding activity. This intellectual engagement is not only beneficial for cognitive health but also offers a purposeful endeavour that can replace the fulfillment previously derived from their work.

But drawing on my experiences as a financial adviser, I would issue a word of caution. I’ve seen numerous clients, particularly males, attempt to cram a lifetime of investing knowledge into a few short years. The lack of a deeper understanding of their own motivations leaves many struggling to control what they perceive as uncontrollable.

It’s a common scenario: retirees pull away from financial advice services, convinced they can manage on their own, only to return after realising that managing a finite pool of capital is not easy. This cycle underscores the emotional complexities of retirement and the need for professional guidance.

As financial advisers, it is crucial to understand these psychological motivations and approach the topic with empathy and support. Although it’s important to offer guidance and highlight the value of professional expertise in managing retirement funds, acknowledging retirees’ desire for control and involvement is just as critical.

Providing education, tools, and resources can empower retirees to make informed decisions, whether they choose to self-manage their funds or seek professional management. Ultimately, the goal is to support retirees in navigating their golden years with confidence, ensuring their financial well-being while respecting their psychological needs.