Most of us understand the importance of planning ahead when it comes to super.
But so few of us act on it. “She’ll be right” is still the dominant view. The other dominant view is that the majority of Aussies won’t be able to support themselves in retirement, so…
Maybe we need to change our minds just a bit. Or perhaps this is just a question for psychology!
As always, we aren’t financial advisers and we don’t give financial advice. We help you with one thing – reviewing your super. So let’s start 🙂
Human Psychology & Retirement
We all have these big brains that are incredibly useful but also incredibly clumsy.
Planning for the future is one such clumsy-ness. We are programmed to privilege the present. This is our ancient wiring from all the way back when the Australopithecus Africanus started walking on two legs. So, we understand – it’s pretty difficult to overcome 6 million years of evolutionary programming. And the principle here is that it’s apparently “easier” to wait to plan for the future, as the here and now is more real. Or perhaps your current self feels like it is so distant from your future self (this feeling reduces your likelihood to plan and means that you are treating your “future self” like a stranger.)
So, wait, wait, wait it is.
NONE of that changes the fact that you need to live today, and tomorrow, AND FOR SEVERAL THOUSAND MORE DAYS. And you probably want your next 1,000 days to be enjoyable; as well as your last 1,000 days.
This is where you need to reconsider “waiting.” Instead of saying “this is too difficult to deal with today, I’ll deal with it later.” You should think “this is TOO EXPENSIVE to deal with later, I’ll deal with it today.
A first reason for why people wait to save is that they fail to consider the financial cost of waiting. In a dynamic decision situation like retirement saving, timing affects the outcomes. We know that people often do not spontaneously consider all factors that are relevant to a decision, and in this case people may not take into account the cost of waiting. This type of ignorance is comparable to people’s tendency to neglect opportunity cost when making decisions. People know that money spend on a car cannot be spend on something else. Yet, they do not always take these opportunity costs into account. Similarly, it is possible that people wait to save for retirement because they do not think about the cost of waiting. Simply reminding people that in retirement saving, waiting costs money, may thus already affect their choices.
“Saving for Retirement: Why People Wait” by Job M. T. Krijnen, Seger M. Breugelmans, Marcel Zeelenberg
To Much Information Doesn’t Help
Another issue that compels us to wait is information overload.
Regardless of the field of study, a tremendous amount of research has been done that proves that “too many options” harm decision making, rather than help it. Moreover, “too much information” harms decisiveness, rather than informs it.
This is even the case when the information is of critical value.
For example, you may have gotten a letter from the Australian Prudential Regulation Authority (APRA), stating that 13 MySuper products had failed its performance test.
You can read about it here, here, and here.
Two months later… only 7% of the 1 million accounts affected were closed.
ONLY 7%!! Even after people were strongly informed that they were in a dismally performing super fund or investment option.
So, when we get bombarded by information, even useful information, our brains check out. This makes sense if we think of ourselves like an animal, but it doesn’t make sense if we think of ourselves as someone with several thousand days ahead of us…
What We Gain and What We Lose
Some of the best psychological understanding on this topic that I’ve read comes from Retirement Insight. I’ll just share directly as I couldn’t say it better myself!
People also assume that the personal side will fall into place, that it will magically work out like, “Hey, we go on vacation, we do some things, we miss some things, but it all works out okay.” That’s not always the case. People also assume that work is bad and leisure is good. They assume that with more time and fewer obligations, it’s just going to be the best thing ever; that’s what they’ve always wanted. That’s not the case. We don’t want to talk about what people are going to lose compared to what they think they’re going to gain.
https://www.retirement-insight.com/the-psychology-of-retirement/ accessed 22 Feb 2022
and
Another flawed assumption is that couples like and know each other. Often couples aren’t even on the same page, let alone in the same book. Both individuals in that couple think the other assumes the same for retirement. Guess when they most of the time figure it out? After they’re already spending 24 hours a day, seven days a week. It’s fertile ground for arguments and is a big reason we continue to see increases in silver divorce.
https://www.retirement-insight.com/the-psychology-of-retirement/ accessed 22 Feb 2022
Because we technically DON’T know ourselves and our partner in the future, planning is just scary. It’s a big unknown.
So we try to tuck it under the rug or in a closet and hope it goes away.
But it isn’t and it won’t.
At this point in time, if you’ve read this far, I’m supposed to leave a big “call to action” with a button or a link or something for your click on.
Not going to do that today. If you want to review your super you know what to do.