Saturday, July 28, 2012

Magical Thinking Doesn't Work, in Religion or Retirement

A New York Times article by retirement policy expert Teresa Ghilarducci shows that the cognitive foibles which plague human beings are especially harmful when it comes to retirement planning:
It makes perfect sense for human beings to think each of us is special and can work forever. To admit you can’t, or might not be able to, is hard, and denial and magical thinking are underrated human coping devices in response to helplessness and fear.
Magical thinking - sound familiar?  Talk about discounting the future!  In the meantime, when demographic survey results come out, wouldn't it be great to hear "and as a group, atheists save more and are financially better off in retirement than theists of all stripes."  It seems that if a group is more rational on average, and if this means anything, then there should be measurable outcomes - and money isn't everything, but it is a huge determinant of utility (very roughly, overall happiness).  Ms. Ghilarducci goes on:
In my ad hoc retirement talks, I repeatedly hear about the "guy." This is a for-profit investment adviser, often described as, "I have this guy who is pretty good, he always calls, doesn't push me into investments." When I ask how much the "guy" costs, or if the guy has fiduciary loyalty — to the client, not the firm — or if their investments do better than a standard low-fee benchmark, they inevitably don't know. After hearing about their magical guy, I ask about their "number." To maintain living standards into old age we need roughly 20 times our annual income in financial wealth.

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