Aurora Borealis
1 June 2015 CFA Institute Journal Review

Positive Psychological Attributes and Retirement Satisfaction (Digest Summary)

Analyzing the relationship between positive psychological attributes and retirement satisfaction, the authors find a positive association with important implications for financial planners and counselors who advise on retirement issues.

What’s Inside?

The authors examine the relationship between positive psychology and retirement satisfaction (as a subjective measure of happiness in retirement). To find a proxy to gauge positive psychological attributes, they turn to Seligman’s theoretical psychological framework known as PERMA—that is, positive emotion, engagement, relationships, meaning, and accomplishment (Flourish: A Visionary New Understanding of Happiness and Well-Being 2012). They measure dispositional optimism, reading the newspaper and having a hobby, family support, purpose in life and religion, and perceived mastery to address the five elements in this framework.

The main results uncover significant evidence linking positive psychology with retirement satisfaction. Specifically, the authors find a positive link between (1) dispositional optimism, perceived mastery, purpose in life, and family support and (2) level of retirement satisfaction, all else being constant.

But there was no support for a relationship between (1) an individual’s level of religiosity, support from friends, or reading the newspaper daily/having a hobby and (2) level of retirement satisfaction.

How Is This Research Useful to Practitioners?

The authors examine published literature around retirement psychological well-being and distill the pertinent theories and findings. Their research extends the boundaries of the present body of knowledge by overcoming the limitations of the existing research in a number of ways.

First, they seek to build on a new field of psychological research—positive psychology—that has emerged over the past decade. Existing research around general retiree happiness tends to focus on a very narrow range of factors relevant to psychological well-being. The authors note that traditional psychology views the world through the prism lens of deficit and such mental illness measures as depression while concentrating on the treatment of people with deficiencies and in need of healing. Positive psychology rejects this old paradigm as inadequate. Instead, it aims to explain how mentally healthy people can live a richer and fuller life by improving their psychological functioning.

Second, much of the existing research has used small niche samples, which makes it difficult to generalize results beyond the sample investigated. For their study, the authors draw their sample from panel data of over 26,000 US retirees from the 2006 and 2008 Health and Retirement Study (HRS). The HRS is representative of the US population over the age of 50.

How Did the Authors Conduct This Research?

The authors construct their core dataset from a user-friendly version of the HRS created by the RAND Center for the Study of Aging. The sample is restricted to persons aged 50 and older who reported being retired in 2008. The resulting weighted sample included 5,146 observations representing over 20 million retired individuals.

Retirement satisfaction serves as the dependent variable. The variables accounting for positive psychological attributes are based on the five elements of PERMA. In addition, control variables are introduced to account for such socioeconomic and health factors as income, nonhousing net worth, homeownership status, education, gender, marital status, age, and race. Physical health is measured by self-reported health status and difficulty performing an activity of daily living (ADL). The authors then run an ordinal logistic model using these variables.

In addition to the main results, other relationships are observed. Holding all else constant, individuals aged 65 and older (as compared with those 50–64) with nonhousing net worth of $500,000 or more (as compared with those with nonhousing net worth between $250,000 and $500,000) are more likely to report higher levels of retirement satisfaction. Those with income lower than $25,000 (as compared with those with income between $50,000 and $75,000) and nonhousing net worth less than $25,000 (as compared with those with nonhousing net worth between $250,000 and $500,000) are more likely to report lower levels of retirement satisfaction. Individuals who reported better health status and those who did not experience difficulty completing an ADL are significantly more likely to report higher levels of retirement satisfaction.

Abstractor’s Viewpoint

The findings of this study are not entirely unexpected, but the authors contribute a firm empirical foundation for a holistic approach toward retirement planning—one that encompasses both economic and psychological aspects. The study should be of interest, with real-world implications, for such practitioners as financial planners and counselors. The authors provide various practical tips to capitalize on PERMA in practice and the use of positive psychology to boost psychological well-being in retirees.

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