“Life expectancies have dramatically increased in North America and much of the rest of the world. People now have to make critical life choices with a longer future in mind than ever before.”- Teresa Kuhn.
There’s not much retirement advice I can give you that you haven’t heard before. Parents, friends, co-workers, financial advisors, and television personalities have probably given you a long list of sensible ways to create a happy life when you stop working. Such safe and sound principles include: refining and reviewing your budget, getting rid of as much debt as you can, planning for emergencies and future medical needs, maxing out your qualified plans, working as long as possible, and having enough safe money products in your portfolio. Most of these ideas make sense to us intellectually, and many people try diligently to implement the concepts into their lives. Yet, more often than not, they fail.
Clients and prospective clients often ask me, “Why is it so hard to save money for retirement?” Why do Americans continue to make mistakes with their retirement planning that unfortunately result in 70% or more of us being woefully underfunded when we no longer work? For the most part, it’s not due to a lack of motivation or discipline. It’s also not because we don’t understand how vital it is to start saving early, stay out of debt, and grow our wealth. Something else is at work here, something that is challenging to change.
Our brains treat our future selves as strangers.
In a paper entitled “Future self-continuity: How conceptions of the future self transform intertemporal choice, Hal Hershfeld of the University of California, Los Angeles discusses the essential role of self-perception in all decisions, including retirement planning. Hershfeld, along with several other psychologists looking for root causes of retirement failure, posits that our future self is either the “beneficiary or unfortunate inheritor” of every major and minor decision we make. The issue is that most of us have difficulty even imagining what our future selves will be like, much less seeing that future person in a positive light.
Many, if not most, people see their future selves as strangers and are thus less inclined to make good choices. The human brain, wired as it is for self-preservation, is not geared to work hard in order to benefit a stranger. The ability to overcome this limitation and act for the benefit of the future self, Hershfeld believes, relies on having a greater degree of connection between a person’s current and future selves. In other words, your brain must create a vision of what you and our life will be like twenty, thirty, or forty years from now and connect this image to the present self. Sadly, it seems the human brain is not well-equipped to make such a connection.
Technology may hold the key.
If you’ve ever watched true crime programs such as “America’s Most Wanted,” or “Crimestoppers,” you’ve seen computer-aged photos of missing children or crime suspects designed to show how that person might look in the present day. This technology, once reserved for law enforcement, is now available to everyone. Apps (many of which are free), such as Make Me Old, Aging Booth, and Oldify started as “just for fun” programs for people curious about how they might look in the future. However, psychologists and advisors are now using them to help people connect with their future retired selves. Creating this connection and making it a regular part of peoples’ daily lives holds great promise in the area of decision-making.
Summing it up: Retirement planning success may be contingent upon more than resolve and discipline. It could also be a matter of employing technology to train our brains. It appears that better financial decisions could be as simple as helping our brains achieve a future focus and accept our older selves as friends instead of strangers.