Retirement Mental Health and Wealth

The average age of retirement in the U.S. is increasing, which may be a good thing. Studies show that working preserves agility of the mind and keeps money in the would-be retiree’s wallet — sometimes in unexpected ways.

From Gallup Economy

The American dream is to retire young and have more free time. Yet, early retirement can bring on a whole new set of problems.

Five out of six early retirees I interviewed didn’t know how to manage their excess time after giving up work. They wanted to do something useful that would still allow them to be flexible and earn money. They ended up gravitating toward trading stocks. Eventually, they whittled away their retirement money. Three of the five returned to work.

What happens

Jim Smith (not his real name) is representative. He was only 45 years old when he stopped working at the firm he founded and owned. His wife was still employed at a different outside job full time. Mr. Smith had few activities outside of his work and thereby little to do during the day after he retired. He passed his days by trading small amounts of money in the stock market.

“Later I accelerated the risk because I made money earlier,” he recounts. Smith’s stock trades ping-ponged between some winning and more losing for six months. “My life was an emotional roller coaster.”

His wife begged him to stop trading stocks because he was squandering their nest egg. She even said she would pay him to stop. Finally, the young retiree could see there was no alternative but to quit. He found a job. Now, he is working at an investment firm to earn money on trades other people are making rather than trying to make cash on trades he makes for himself. He is once again putting money into the family coffers.

Terrance Odean from the University of California, Davis, studies stock trading and reported that people do use the stock market as a leisure activity. He refers to this as stock trading for entertainment. However, he found that the cost of trading was more than any gains during frequent trading. The trader, on average, loses money in the end.

The U.S. is not the only country affected by this phenomenon. Muller-Peters found a similar pattern in Germany, according to Karl-Erik Warneryd’s book Stock-Market Psychology: How People Value and Trade Stocks. He reported that some old-age pensioners used stock market trading as a substitute for earlier professional activities.

In summary

When fantasizing about retiring young, one caveat comes to mind: “Be careful what you wish for.”

Working longer, even when you would rather not, may be curative in unexpected ways. One is that it keeps the mind active. Secondly, there is an income stream. And, lastly, at least for some people, there is less time to virtually gamble away money previously earned.