Looking at retirement from a different approach, Harvard Business School Professor Michael Norton says the experiences need to be the focus, rather than how much money one needs. The "doom and gloom" mindset of retirees doesn't really encourage them to save money, he explains. The focus needs to shift how to set oneself up to do all of those experiences that will make one happy during retirement and maximize their well-being.
Research shows that people drastically under-estimate what their retirement "number" is because they tend to think of the bare minimum of what they might need and not think of what they want to do with all of that time they'll have and how much money they'll need to accomplish their goals. Norton says this actually increases the number you'll need to retire, which may feel threatening, but this increase will be for things one cares about instead of things that are doom and gloom.
Norton suggests people think of two things when they retire; experiences and leaving a legacy. When people are going into retirement, he is encourages people to have accounts for experiences and accounts for giving to others as you're saving for retirement, to make sure that when you get there, you're able to do more of those things.
There is also the fear around social security and Norton doesn't feel that fear is totally accurate. "It's feeding into this whole negativity around retirement that people are struggling with right now and it can impede us from taking the steps we need to save because it's so negative and we're trying to turn this into a more positive decision," he says.
The current trend on how people spend their money is on things that we don't need and that don't make us happy. The research shows that while clothes and tv's are nice, they don't really change the happiness now and they're stealing, in a sense, from our future selves because that's money we could have saved. Even for those struggling to make ends meet, it's important to think of their money as whether they're getting an emotional payoff now and will you get an emotional payoff later, Norton advises.
Michael Norton is an Associate Professor of Business Administration in the Marketing Unit at the Harvard Business School and co-author of "Happy Money: The Science of Smarter Money." He spoke with Retirement News Today, providing online retirement news video content. Retirement News Today is a featured network of Sequence Media Group.