The Psychology of Satisfaction With Retirement

A new research paper from Vanguard examines the “ongoing retirement transition” playing out across four nations that share deep social and economic ties, but which also have important degrees of cultural independence: the U.S., Canada, the United Kingdom and Australia.

As the paper lays out, these countries are all in “various stages of a shift from defined benefit (DB) to defined contribution (DC) workplace retirement systems.” In each country, people are living longer than ever, and this has challenged the basic assumptions about the workability of providing even basic DB benefits. People in each country also have varying degrees of access to financial advisers and planning support. 

“The Australian superannuation system is the farthest along the spectrum; its universal superannuation system is largely DC-oriented,” researchers explain. On the other end, the United Kingdom “has only recently begun to make the shift from a DB- to a DC-centered private system.”

Comparing the retirement outcomes of the systems of these four nations is difficult but also potentially highly informative for the objective of “uncovering any areas of unmet needs during the retirement transition,” particularly in the U.S., where there is a real middle ground that has been established between a DC and a DB approach to workplace retirement planning. And so the researchers ask, how has retirement satisfaction shifted over the years in these countries, and what can this tell us about the “success” of the transition toward DC?

Data cited by Vanguard shows this is not an easy matter to clarify, as retirees in all four countries show markedly higher satisfaction with their current financial situation than pre-retirees. The gap is in fact largest in the still-DB-focused UK, where 52% of pre-retirees are highly satisfied with their financial situation, compared with 78% of those who are actually retired. Retirees in the UK are also markedly more likely than pre-retirees to say they “can spend freely, within reason.”

In the U.S., private sector workers who are pre-retirees are slightly more likely to be highly satisfied with their current financial situation than their UK counterparts, at 53%, but at the same time only 65% of U.S. retirees say they are highly satisfied financially. This is pretty far below the 78% uncovered for the UK.

Overall the research seems to present the picture that both DC and DB can work fine to support the retirement needs of a working population—and that they can work fine together, too. But drawing deeper conclusions is tricky: It is also a surprisingly slippery matter to analyze just what is going on with people’s financial confidence in that period before and after the real first day of retirement. In a sense it is only when an individual reaches a high degree of satisfaction with their financial situation that they would even first conceive of retirement as an actual possibility—so is it really that informative to compare pre-retiree and retiree satisfaction this way, whether within or across countries?  

There is also the fact to consider that some people are, to greater and lesser degrees, forced into retirement, say by a progressively worsening health issue or a lack of relevant skills to suit employers’ needs. The Vanguard research makes a strong attempt at constellating such considerations. The full report can be downloaded here.