World Mental Health Day 2023: How does retirement impact mental health and financial security?

Retirement is a life event that has a profound impact on our mental and emotional health. In fact, it may be said that it is the most complex life stage of all, trumping even our “confused & angry” teenage years! Globally, there have been many studies around the impact of retirement on one’s mental health.

Most recently, a study called “Mental health around retirement: evidence of Ashenfelter’s dip” (Vo & Phu-Duyen, 2023) showed that people become happier starting two years before their retirement, but this “happiness” starts to drop in the months leading up to their actual retirement and continues to dip thereafter. Another recent study by Loma Linda University Health (2022) showed that“the prevalence of depression among retirees was 28% higher than the overall adult population”.

Broadly speaking, it may be said that the anticipation of transitioning out of the routine, bustle, and “eustress” of day-to-day work into a more relaxed lifestyle makes us happier, but after retiring – the very same lack of structured routine and sense of purpose can ironically send us spiralling into depression if we are not careful.

This roller coaster ride of emotions that we experience in the years leading up to our retirement and beyond can impact our finances, too. Over the years, we have seen several clients going into panic-mode a few years before retiring. This can result in one of two things – a complete shutdown of risk tolerance in an effort to preserve every rupee, or an “all in” last ditch effort towards maximising one’s retirement corpus by making speculative investments in things like crypto or F&O. Both are not good approaches.

Of the two follies, the latter is probably more dangerous as it involves a potential point of no return, but the former is harmful as well because a measured degree of risk taking in the 5-7 years leading up to retirement can in fact make a big difference to your post-retirement lifestyle. This is because the base on which the return differential would apply and compound would likely be quite sizable by this point.

To illustrate this in numbers – ₹1 Crore locked away in a 4% (Post Tax) Fixed Deposit for the 5 years leading up to your retirement would grow to 1.21 Crores. The same 1 Crore, if it grew at 12% CAGR, would compound to 1.76 Crores – a substantial 55 lakhs higher that can result in a much higher monthly withdrawal after you retire.

But what if a pandemic-like event hits just before your retirement, you say? No problem – you were not going to consume your entire corpus in Year 1 in any case! All you need to do is withdraw one year’s expenses, and then strap on your seat belt and stay put with the rest - because history tells us time and again that rebounds from event-led crashes are equally sharp.

At an emotional level, we have observed that the best retirees (from a financial standpoint) are those who exhibit balanced calmness, and for lack of a better term – a sense of “acceptance” in the years immediately preceding their retirement. With life’s work done, it is now time to gather the fruits to the best extent possible, mentally reconcile the missed opportunities, the highs and lows, make peace with the wins and losses, and approach the coming years with fortitude and realism rather than with disappointment, worry or panic.

These realists bring the same calm acceptance into their investments too. In other words, they adopt a balanced approach to risk taking, factor in key numbers like inflation and life expectancy, and arrive at the number that they can afford to spend every month for “x” years. They then proceed with making the requisite lifestyle adjustments to be able to fit into that number rather than trying to make the number fit their needs.

Fortunately, there are plenty of remunerative options available these days for retirees as well. You could become a consultant, an educator, a life coach, a freelancer, or even set up a small business if you have the time and the capital. We know of retirees who went on to become board advisors or mentors to some great companies, remaining gainfully employed in the process, albeit at their own terms!

Continuing to do productive work after retirement is in fact a wonderful idea because the associated sense of purpose can improve your quality of life overall. After all - with life expectancies going up every decade, it is not going to be easy to keep the “F.I.R.E” burning for 40 years! Having a post-retirement action plan is vital.

Aniruddha Bose, Chief Business Officer, FinEdge