Why is planning for your retirement difficult? - Gemma

Traditional economic theory suggests that you

borrow when you are still young,
save in your middle age,
build wealth and spend savings in old age.

This type of reasoning is far from being rational. Evidence, based on behavioural economic research, shows that most people postpone or avoid dedication or involvement to reach solid financial goals, even when they are aware that this is ultimately in their best interest.

Good saving habits form part of your best intentions but when faced with complexity and choice, you are likely to decide to ‘do it the following day’, too lazy to go beyond the comfort zone wherein you are quite satisfied with how things are going.

Have you ever heard of Behavioural Response Pay-Offs?

Which of the following assimilate to your attitudes when faced with an important task you need to accomplish? Do you tend to:

Avoid unclear circumstances?
Procrastinate?
Rely too heavily on the very first piece of information given and avoid more information?
Rely on the immediate examples that come to mind?
Feel put off with too many options?
Select data that tend to agree / conform with your existing views?
React to a choice by the way the choice is presented? (example : avoiding to ask for risks when a positive option is presented)
Adapt a ‘herding’ attitude where actions are based on what the majority have selected / are doing?
Not to act, afraid of change?
Show a preference towards avoidance of small losses rather than the acquisition of larger gains?
Evaluate wealth frequently whilst feeling sensitive to losses?
Embark with a know-it-all attitude?
Give importance to rewards that are closer to the present time? (instant gratification)
Go for what is certain other than a choice that has an uncertain payoff?

Some attitudes are the result of poor skills or insufficient knowledge and may all contribute to a lack of action and poor decisions but can be substituted with more constructive habits and new ways of behaving after a reflection of ourselves.

If you want to learn more about how behaviour affects the way you decide for the long term, you may wish to read: Final Report (FR09/14) on ‘Strategic Framework for Investor Education and Financial Literacy’ issued by the Board of the International Organisation of Securities Commissions in October 2014: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD462.pdf.

This is a good source for you to reflect upon.