Managing Retirement – or how not to end up sleeping under a bridge
Will your retirement fund keep you fed and watered?
Are people really lazy and stupid?
No. Well, yes. We are, collectively, incredibly bad at predicting the future, or at least thinking that “me in the year 2050” is some kind of clever creature who exercises wildly, shuns chocolate and won’t spend all our pension pot unwisely.
Picture this: You and 100 of the dullest people you have ever met are going to an all-day conference one month from today. You’re on a strict diet. If I ask you what you want to eat at lunch at that conference, you might tell me you’re opting for salad. But on the day of the conference, there are two serving stations – one for salad, and another for carbs and chocolate brownies. My bet is that consumption runs along the line of 3 salads and 97 chocolate brownies (and the people eating salads are allergic to brownies). Why? Because we’re all perfect in the future.
What's changed with pensions?
Since April 2015, you have been able to access your pension pot with no restrictions! Which of course, you would spend wisely, based on the fact you’ve always saved, never overspent, never splurged on a pointless purchase. In short, you’re utterly rational. Your tax on withdrawing a pension will be cut to your personal tax rate. It will be easier than ever before to use your entire pension fund as you wish.
The problem is, we discount the future massively. I saw a study by Friend’s Life that said
“only 7 per cent of people say they will actually take 100 per cent of their funds, contradicting concerns that with these new financial freedoms people would spend irresponsibly.”
YEAH RIGHT.
Do you believe that? I do. I believe those surveyed really THINK they won’t spend it. However, there’s a wealth of research from behavioural science that says quite the opposite.
Because anything that uses willpower (like not spending a retirement fund which is burning a hole in your pocket) is tricky to navigate.
Martin Wheatley, Chairman of the FCA, recently addressed the National Association of Pension Fund's conference regarding the topic of the pensions change (which came through in April, after the speech) “we’ve created a model...where there is more consumer responsibility…and as many protections as we can build from the regulator, from regulated firms, ultimately it’s a consumer decision as to what choice they make at that point in time. And that’s why it’s a defining moment of our age”
Do we trust ourselves to do this well? To not blow our pensions?
The problem is that we treat our future selves as if they are other people.
“To those estranged from their future selves, saving is like a choice between spending money today or giving it to a stranger years from now”
One way to make people save more for retirement has been tested and it involves simply ageing your photo and making you look at it. All of a sudden, seeing yourself in all your wrinkled glory, brings home that you and future-you are the same person. It’s the basic act of holding up a mirror – but one that artificially ages you.
When trying to help others save for retirement, or in fact, do anything at all, your job is to make it easier for them to really see their problems with clarity – help them think about the problem – and bring it home to them that it is relevant to them in the here and now.
One of most effective the ways you can help people is by devising a checklist to do their thinking for them. If you haven’t read it already, you should get a copy of Atul Gawande’s checklist manifesto.
Which leg shall I amputate? Better check!
This surgical safety checklist makes sure the surgeon checks which leg to operate on – and whether there’s enough blood in case anything goes wrong. My favourite is the first question, which asks if you've checked it’s the right patient. It is never easy thinking for other people though. As brilliantly put by my favourite "Applied Behavioural Thinker":
“Thinking for other people so that they don’t have to think at all, is one of the hardest things I’ve ever done.”
Three points that Dr. Southgate likes to hammer home:
One: We are all in the business of thinking about thinking, and it is your job to think about how something should be thought about and where possible, make it easier for others.
Two: Nothing is harder than thinking about thinking
Three: Except - designing a business to think about thinking.
Which makes me think – where’s the FCA’s checklist for retirees?
Have you come across any checklists which apply in your own business? Tell us in the comments below.