By Michael J. Searcy
Have you heard of loss aversion? In economics and decision theory, “loss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains.”
Loss aversion may help explain why people are not saving enough for retirement – they may avoid saving today because it feels like they’re losing the ability to use that money for things they want now and don’t recognize the delayed gratification of using that money for a comfortable retirement in the future.
If you’re not currently saving for retirement, your future may be in danger.
A comfortable retirement is possible, but it will be extremely unlikely if you put off saving and live above your means. Simply put, the more you save and the longer you save, the more options you will have in life.
Planning for retirement today is not the same as how our parents or grandparents planned. Not only did they have a shorter life expectancy (77.8 and 80 years for men and women in 1950 compared to 84.3 and 86.6 for men and women in 2016), but they also probably had a pension and invested in a climbing stock market their entire life. The new issues we face include:
- Declining income
- Increased longevity (both outliving your savings and facing greater health care needs in later years)
- Increasing cost of goods
- Underfunded Social Security
- Baby Boomers playing catch up from 2008
The government cannot guarantee everyone a comfortable retirement. To achieve this, you have to take matters into your own hands. This means stopping overconsumption in favor of increased savings and not counting on the government or your employer to take care of your future. And for the sake of your children’s future, teach them about compounding so they can start preparing even earlier than you did.
For a free copy of our whitepaper: America’s Retirement Crisis and Strategies to Mitigate Longevity Risk, email your request to This email address is being protected from spambots. You need JavaScript enabled to view it..
Sources:
https://en.wikipedia.org/wiki/Loss_aversion
http://time.com/money/4258451/retirement-savings-survey/ (Chart from GoBankingRates.com)
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.
The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Originally published in Johnson County Lifestyles and published for the blog on September 6, 2016 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.
