This article is important for advisors because it’s designed to help bridge the gap between the soft side and hard side of retirement planning. Too often advisors feel that the personal/emotional side of retirement isn’t important or it’s too fluffy, and that it will take care of itself as long as the dollars and cents are correct. That’s just not the case as key aspects of behavior economics will illustrate.

If you haven’t read my previous article, The Behavioral Economics Of Retirement, I would encourage you do to so. It provides a base foundation for applying science to the retirement planning process and is a good primer for how valuable understanding this soft side can be.

In a nutshell, behavioral economics is about understanding human decision making and behavior. The issue I have with it is the sole focus it puts on financial factors. Granted, the research is useful and I believe has transformed retirement savings for the better. However, the current literature and studies fall far short in the non-financial categories, therefore creating a major void in helping people make better retirement decisions.

Therefore, I want to address several key issues related to it, with the first being loss-aversion. It’s a popular concept that advisors are already familiar with and simply suggests people are more concerned with loss than gain. It’s a big reason why fear-based marketing works so well in our industry, i.e., the fear of running out of money. The interesting thing about retirement planning is we don’t talk about personal/mental/emotional losses during this transition. We don’t tell people to be afraid of losing out on some things.

Instead, we foster what I call gain assumption. In traditional planning conversations, marketing and media, we point to all the things people will gain once they retire. They will gain freedom, time, the opportunity to rekindle relationships, improve their health, restart old or new hobbies, and more.

It’s a beautiful concept. Leave behind all the things you don’t like at work and walk into this idyllic life. But that’s just not how it works. It’s much more complicated than that primarily because of the honeymoon phase of retirement. Essentially, retirement can actually start out great and initially feel like the best thing ever. People relish in their newfound freedom, options and choices.

But what happens after three or six months of self-indulgence? This is where we start to see issues related to temporal discounting. This is another concept many advisors are familiar with. It suggests that people prefer short-term benefits over long-term ones. For example, if you ask someone if they would rather have $100 today or $125 in a month. Most people would take the $100 today because they don’t feel that the longer time horizon is worth the trade-off for $25 more dollars.

The problem with temporal discounting in everyday life in retirement comes when people discount the long-term value of the things they lose at work including routine, social connection and physical activity to name a few. Meaning they delay doing anything proactive to replace them. They assume they deserve this break and can easily pick-up where they left off at some point in the future.

Unfortunately, this happens because we have trained people to do so. We have focused so much on getting people to the finish line of retirement that we haven’t even looked at the damage we have done once we push them into it.

As a result, this honeymoon delay can create emotional burdens and complexity—two factors that serve as the foundation for procrastination. We see this in both traditional retirement planning as well as non-financial retirement planning. In the traditional world, we all know that planning can be complex. There are a lot of factors to consider and sometimes it can be downright overwhelming. So, people put off doing it.

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