Why Do People Avoid Planning for Retirement?

One of the reasons may be that we have difficulty making connecting with our future selves. We see our future selves as strangers and don’t feel compelled to take care of that stranger. So, if we can change our perception of our future self, then we can perhaps change our hidden behaviors that prevent planning for retirement. In order to get people to plan for retirement, it’s important to first understand why they don’t. Behavioral scientists working have helped identify five universal behaviors that keep people from planning for their retirement

A study found that 56% of retirement plan participants said they struggle with the Longevity Disconnect behavior, find it hard to imagine themselves in years to come, and have difficulty understanding their future financial needs.  In the same study by Prudential  24% struggled with Optimism Bias, while 13% with Procrastination and only 7% with Overreaction. Less than 1% struggled with Impulse Control

Research tells us that most people use two modes of decision-making: instinctive and reflective. Most behavior is governed by the instinctive system, like driving or hitting a baseball. Some behavior is slower and deliberate and engages the reflective system, like taking the SAT or planning or retirement.

Procrastination: I’ll Do It Later

The average person procrastinates two hours per day. Why? First, we believe our future selves will be smarter than our current selves. Second, over the course of a day, we make hundreds, even thousands, of decisions. Our brains get tired; so, tough decisions lose out to easier ones. Even in our busy lives, it’s easier to daydream about the future than spend the time we need to plan for it.

Optimism Bias: It Won’t Happen to Me

We are naturally optimistic. Why worry? We think things will turn out better for “us” than “them.” But this optimism can cloud our judgment and make us terrible at assessing risk. The result is we don’t take preparing for our future security as seriously as we should.

Overreaction: I Just Can’t Resist

We know there are various ways our emotions impact our financial decisions. Many of our important decisions are guided by what others are doing, even when we know it may not be right for us. For example, people may flock to pull out of stock when the market is going down, only to miss the opportunity to catch the increase when the market moves in the other direction.

Impulse Control: I Want It Now

We are conditioned to want things now, even though resisting short-term impulses can pay off much more in the long term. The idea of waiting or resisting a temptation is painful. So the concept of putting aside money for far-off financial security is almost inconceivable.

Why Participant Behavior Matters

By identifying the invisible forces behind our predictably irrational behavior toward money, we can all help to reframe the retirement conversation.

When we understand the behavioral quirks that influence participants’ saving and investing behavior, we can evaluate the plan from an entirely new perspective. We need to understand that our future self is not a stranger, and once we understand and identify with our future self, the faster we may decide to plan for retirement.