Why do your emotions around investing change when you retire?

When and how we choose to retire, and what we do when we get there, is a very personal choice.

That said, for many people, retiring can be an emotional process. It is the beginning of a new chapter in life that can uproot our sense of identity.

Our relationship with money also shifts when we retire. That’s because we tend to move from an ‘accumulation’ phase (working, whilst building our wealth) to a ‘decumulation’ phase (not working, whilst spending our wealth).

This is often accompanied by a different lifestyle and evolving financial circumstances.

How we feel about our money can also change.

Maybe on reaching retirement, you feel like you want to splurge some of your pension, which looks like it will last you for a long time. You decide to use your pension freedoms to treat yourself to an expensive holiday – only to return and feel anxious about what you can afford 20 years from now, or regret your impulsiveness.

There’s a scientific reason for this behaviour. Research has shown that there are two areas of the brain: one that is associated with emotions and the other with abstract reasoning¹.

“Our emotional brain has a hard time imagining the future, even though our logical brain clearly sees the future consequences of our current actions," says David Laibson, a professor of economics at Harvard University.

Or, maybe you were unsettled by market swings while you were investing into your pension – but ultimately felt reassured that you could ride out this volatility as you knew you were investing for several more years.

Now that you’re in retirement, maybe market swings feel scarier, and trigger a different set of concerns, such as your hope of leaving a legacy or having to modify your lifestyle to avoid running out of money.

When you retire, your investments become more vulnerable to market fluctuations, particularly if you are using investments to provide benefits or income. Here, sequencing risk (the risk that the timing of your withdrawal is unfavourable, reducing your investment’s likelihood of supporting future withdrawals) can have a material impact.