An article posted by CNBC.com—Bust of the Baby Boomer Economy: ‘Generation Spend’ Tightens Belt—proposes a gloomy economic future due to Boomer ageing.
Jessica Rao, the article’s author, argues “because of severe recession and stock market losses, Boomers have less to spend, and further, they’re entering a post-career life stage when they will reduce spending anyway.”
While this story may be accurate in aggregate—overall national economic growth may decline from loftier times 15 years ago, due to many factors including global competition. But first, we have to worry about getting enough money to retire.
We are not rational, autonomous, micro calculators who exercise independent and unbiased judgment when it comes to our retirement plans. Most of us strive to maximise our self-interest, but for a variety of reasons we often fail to act in accordance with the expectations of rational economic and financial theory.
Jessica Rao, the article’s author, argues “because of severe recession and stock market losses, Boomers have less to spend, and further, they’re entering a post-career life stage when they will reduce spending anyway.”
While this story may be accurate in aggregate—overall national economic growth may decline from loftier times 15 years ago, due to many factors including global competition. But first, we have to worry about getting enough money to retire.
We are not rational, autonomous, micro calculators who exercise independent and unbiased judgment when it comes to our retirement plans. Most of us strive to maximise our self-interest, but for a variety of reasons we often fail to act in accordance with the expectations of rational economic and financial theory.
Some of us have self-control problems when it comes to saving;. Others of us simply over discount the future and overvalue the present; we could benefit from pre-commitment pension savings programs. Still others of us may be unduly influenced by our ability to make or not decisions and as a result, our attitudes and action diverge so very much; we want to save more for retirement, but we do not. Also, some individuals only evaluate their investment portfolios by past performance and risk errors cloud their judgment.
We are overconfident about the future and have trouble cutting our losses. There are some of us who do not know what the basic questions are, we do not know how much to save, or how much risk to take. Before the government takes steps to change what we understand about retirement planning there should be plans in place to help those of us who are rational economic agents. We could benefit from commitment devices or from education.
The problem is that contemporary education practices assume that most of us are rational agents and planners, but the evidence suggests that large numbers of us simply are not. Mechanisms must be found, whether through how plans are developed or to delegation to a third party, where workers begin practising the right behaviours when they start to work.
Education can play an ancillary role, explaining the rationale for the way the plans were developed and alternative courses of future action. In effect, there should be a shift from education driving behavioural change to initial behavioural change preceding education.
Long-term annuities are a great way to ensure a steady flow of income during retirement. They allow for a sum of cash to be set aside, then funds are provided at a certain time period determined upon creation. One issue many have with this system is when a large amount of money is needed all at once, rather than small amounts over time. This is when selling the annuity becomes an option. Doing so will net you a lump sum of cash for settlement. This option is usually taken in times of emergency. Hope this was helpful.
ReplyDelete-Jeff