How To Choose the Best Retirement Date With Stanford’s 3D Model
Six scientific recommendations for how to best arrive at YOUR successful retirement decision.
If you won the Giga Billions lottery, would you quit your job?
Surprisingly, a CareerBuilder poll found that 51% of Americans say they would continue working — most of them in the exact same position.
- Seventy-seven percent would be bored without a job
- Seventy-six percent find purpose and accomplishment in their profession
- Forty-two percent would want more money (*although no dollar figure was presented in the poll)
- Twenty-three percent would miss the social aspect of their work
There’s more to retirement than financial security
When we think about retirement we usually focus on financial security, but there are scores of other important factors to consider. So with all these factors to muddle up our minds, how do we decide exactly when to retire?
Well, luckily, Stanford University’s Center on Longevity has the answer. They’ve boiled down all the factors into three domains, the first of which is — you guessed it — financial security.
Financial security in America
The word retirement dates back to 16th-century France, and means to “draw back or withdraw, particularly to a place or position of safety and seclusion.”
Retirement = safety
The idea of retirement security in the US started in the mid-1800s with Civil War military pensions and a few municipal professions such as police, teachers, and firefighters offering public pensions.
According to the CDC, a child born in the US in the late 1800s was expected to live just 47 years. With a lifespan so brief, the idea of retirement was as foreign as the origin of the word itself.
By the 1920s, however, people were living longer lives, and a few industries such as railroads, banking and oil began offering support for workers in their later years.
On August 14, 1935, President Franklin D. Roosevelt signed the Social Security Act and the eligibility age was formally set at 65. That also happened to be the average lifespan of the era, so initial costs were as modest as the scope.
“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.” –President Roosevelt upon signing Social Security Act
In 1937, Ernest Ackerman received the first lump-sum payout of 17 cents, but it wasn’t until January of 1940 when Ida M. Fuller received the first monthly-recurring Social Security check for $22.54.
Today we live longer, so the decision to retire has a tremendous impact on our lives. Will we have enough money? Happiness? Health? Friends? Are we being pushed into retirement? Or are we just desperate to make a change?
Stanford’s Center on Longevity “3D Model”
The Stanford Center on Longevity published two papers [here and here] in 2017 exploring the multitude of factors affecting decisions to retire.
“The decision to retire has life-altering implications for finances, health, and psychological well-being in later life”
They sorted all the factors into three domains and presented them in a simple concept called the “3D Model.” It’s a systematic framework for organizing, evaluating, and understanding the retirement decision process.
When we understand the decision-making process, we can cut through the distractions and focus on the factors that will lead us to the best decision we can make about our retirement date.
Three domains
- Can I afford to retire? (Financial)
- Do I need to retire? (Health)
- Do I want to retire? (Psychological well-being)
Can I afford to retire?
There is ample debate over how much money is needed for retirement. Google it and you’ll get 100 million results. Even financial experts disagree.
Social Security and pensions provide some degree of security, but the rest falls on the individual, who may not be in a position to assess the future effects of investments, economic fluctuations and unpredictable expenses such as healthcare.
Financial predictions are complex and without good models and effective strategies, many people end up working either too many or too few years, both of which can have undesirable consequences.
Do I need to retire?
Studies indicate that many people consider physical and mental health conditions as the most important factors in the timing of their decision.
Those with health problems or family members with issues tend to retire years sooner than those in healthier situations, regardless of their financial circumstances. Sometimes a health scare is all that it takes to jump boldly into retirement.
Almost two-thirds of Americans over age 65 complain of multiple chronic health conditions, so it’s easy to see why health is such a common trigger.
Do I want to retire?
We know we should carefully evaluate the pros and cons and make clear rational retirement choices. But most of us don’t. Many don’t plan or even know how to plan.
Attitudes and beliefs are vast and vague, as are one’s emotional expectations of life after work. Spouse, friends, biases, physical job demands, the expected value of leisure and dozens of other considerations conspire with each other to cloud and confuse.
With too many competing factors, people either avoid making decisions or jump in for the wrong reasons.
Recommendations from the 3D model
The three domains define the decision-making framework and highlight the pitfalls and perils inherent in a sea of factors. Planning for and avoiding these traps results in highly satisfied retirees and the most accurate selection of retirement dates.
- Assess all your financial resources and project them into your retirement. Uncertainty is a problem, but relying on continued income from work is risky as you age.
- Avoid impulsive decisions (“I didn’t get a raise so I quit!”). Wait until the impulse subsides — a “cooling off period” — so you don’t overemphasize one factor over another. Triggers such as age 62 (Social Security eligibility), age 65 (Medicare), or when your friends retire, are important to note but shouldn’t have an outsized impact on your decision.
- Avoidance reasons should be considered slowly and carefully. Leaving employment because you hate your boss or you’re frustrated are poor reasons to retire, particularly if you haven’t evaluated other factors.
- Reduce reliance on work. Build a social structure outside the office so you aren’t tied to only one social group. Look into part-time income options in case you need to moderate a loss of income. Find a sense of purpose and an identity that doesn’t rely on your position or employer.
- Build a positive vision of your life after work. Go beyond the “vacation” aspects of retirement, as those will be just a fraction of your total time.
- Recognize and counterbalance your personal decision-making style. If you’re a rational vs. gut-feeling person, talk to others with contrasting perspectives. Feelings and numbers can coexist and offer a well-rounded approach to your final decision.
Summing it up
Retirement is much more than a financial decision so don’t immediately quit your day job when you win the lottery. You have to plan for the entirety of your retirement and be aware of triggers and traps as you go. The Stanford 3D Model provides a systematic framework for doing that.
Successful retirement results from retiring “to” a positive version of life after work rather than retiring “from” the negative aspects of work.
Retirement satisfaction is when you’re neither compelled to continue working nor compelled to retire. Coercion, whether conscious or unconscious, is a terrible reason to retire.
Some choose the right time. Others have it chosen for them.
A wise friend of mine once said he would retire to his sailboat when he felt he could get more joy from retirement than from work. He’s still working, but keenly in touch with his well-being, financials and health. When the time is right, he’ll know, and he’ll choose a satisfying retirement at just the right time.
You will too.
Won’t you join me?
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