Retirement is a time of life that has grown ever longer in the developed world, and the number of pensioners has increased accordingly, questioning the strength of Social Security systems and the social safety net in general. Financial Planning for Retirement (FRP) consists of the series of activities involved in the accumulation of wealth to cover needs in the post-retirement stage of life. The negative short-, mid-, and long-term consequences of inadequate Financial Planning for Retirement do not only affect individuals, but also their extended families, homes, eventually producing an unwanted impact on the entire society. The Capacity-Willingness-Opportunity Model has been proposed to understand FPR, combined with Intentional Change Theory, a framework for understanding the process, antecedents and consequences of FPR. From this perspective, we propose this promising model, but there are a large number of variables that have not been included that offer novel ways to deepen our understanding of FPR. A focus on each dimension of the model, the role of age and psychosocial variables associated with demographic indicators such as gender, health status, and migration, allow us to provide a proposal of scientific advancement of FPR.
Keywords: retirement, financial planning, ideal self, personal vision, retirement planningGo to:
Financial planning for retirement: a psychosocial perspective
From a societal standpoint, population aging in the developed countries has intensified pressure on public pension systems (Annink et al., 2016). It now seems clear that society will not be able to guarantee quality of life in retirement unless people save on their own behalf including private (i.e., corporate) pensions leading governments to adopt increasingly active policies designed to involve citizens in Financial Planning for Retirement (FPR). FPR consists of the series of activities involved in the accumulation of wealth to cover needs in the post-retirement stage of life. It is necessary because of the high, mid- and long-term, negative impact of poor planning (Choi and Jang, 2016; Ekici and Koydemir, 2016). At the same time, this activity is complex for several reasons. Firstly, most people do not possess the necessary knowledge to make optimal savings and investment decisions. Secondly, individual planning is subject to many factors, such as income, professional career, or health, which, moreover, interact with each other. Thirdly, people may experience anxiety and develop negative attitudes toward contemplating the latter stages of life and planning, ultimately avoiding FPR.
FPR was initially treated as a matter exclusively for economists, accountants and financial advisors. More recently, economists have found “a set of coherent explanatory constructs” useful to understand economic behavior (García-Gallego et al., 2017, p. 848) in psychological concepts. At the same time, in psychology, the importance of finances in retirement was admitted (Topa et al., 2011). Academics have progressively incorporated variables from other disciplines in their empirical studies, accumulating evidence for integrated models of retirement planning (Wong and Earl, 2009; Wang and Shultz, 2010). A wide range of personal resources has been explored as relevant predictor of successful adjustment to retirement (Leung and Earl, 2012). Despite this, empirical research on FPR has increased either without a theoretical model or with more general models, like the Theory of Reasoned Action.
In 2013, Hershey, Jacobs-Lawson, and Austin proposed a conceptual framework called the “Capacity-Willingness-Opportunity Model” to understand FPR. This model is promising for three reasons. It is specific, because it is designed to explain FPR. It is broad because it includes three dimensions with different types of variables. And it is procedural because it incorporates a temporal dimension, analyzing age and stage, and their interaction with the other facets of the model. As previous research suggested, different patterns of change should be considered when examining retirement outcomes (Wang, 2007).
Three dimensions—capacity, willingness and opportunity to plan for retirement—were proposed by Hershey and his colleagues in their model. Capacity refers to the cognitive factors and skills required to plan and save for retirement, distinguishing one person from the next. Among others, one’s knowledge, skills, fluid, and crystallized intelligence, and psychological biases would likely influence the ability to plan and save (Resende and Zeidan, 2015). Meanwhile, willingness consists of the motivational variables that drive planning activities and saving. Hence, this dimension includes the motivational forces and the attitudinal and emotional factors that determine the likelihood that a given individual will begin planning and will sustain the activity over time. These factors are, among others, clarity and nature of one’s financial goals, retirement-related fear and anxiety, perceived social norms, and self-image could be linked to the tendency to plan and save. Finally, the opportunity dimension acknowledges the existence of certain external influences, including environmental facilitators and constraints that affect effective financial tasking. Among others, the availability of voluntary retirement saving programs, tax incentives for saving, and financial advisors in the proximal environment would be associated with the tendency to plan and save.
Taken as a whole, the model is procedural. This means that the model holds a main assumption related to the continuity and strengthening of FPR during the course of adulthood. This turns our attention to the role of age in Hershey’s model, which is somewhat complex. On the one hand, the continuity assumption implies that a stable pattern of entrenchment of capacity, willingness, and opportunities to plan and save could be expected.