BBRG: How You Can Hack Your Retirement Plan

How You Can Hack Your Retirement Plan
Your future self will be thankful.
Bloomberg, July 8, 2019




Last week, I made a few suggestions as to how to behaviorally hack your vacation. It was part of a larger project I have been working on regarding using behavioral economics to improve your investing results. In the research process, I kept seeing findings from behavioral science not only about vacations, but consumer purchases as well. Psychologists and increasingly, economists have developed strategies to improve our processes for making these purchases, increasing both happiness and the satisfaction along the way.

Today’s column is on hacking your retirement planning, but before we get to that, a few words about consumer goods and services. We now know much more about our behavior when it comes to making these purchases. As an example, here are three ways to put what we have learned about behavioral finance to good use:

1. Avoid the tyranny of too much choice: In his 2004 book “The Paradox of Choice,” Barry Schwartz notes that “modern Americans have more choice than any group of people ever has before, and thus, presumably, more freedom and autonomy, we don’t seem to be benefiting from it psychologically.”

The solution, for both stocks and refrigerators, is to limit your options by deciding in advance on the key characteristics you want from any purchase. Create a list of key characteristics you want in your purchase, then prioritize that list. Use it as a negative screen to eliminate most of the potential choices that confront you. Make your decision based on your priorities of value, quality, price, volatility, etc.

2. Prepare for adaptation: Humans are amazingly good at shrugging off setbacks and rising above negative experiences. It is a wonderfully helpful evolutionary trait to be able to adapt to changing conditions on the savannah. But the flipside of being able to mentally get over setbacks is that as we also get used to positive new things as well. This means that purchases will soon lose their luster. That “big new TV” you bought for the family room eventually just becomes “the TV.”

3. Prioritize experiences over goods: “Things” tend not to bring lasting happiness because of our amazing ability to adapt to situations. The solution is to moderate your expectations, and don’t expect lasting happiness from your consumer purchases.1 Instead, shift your focuses to experiences, especially those that generate lasting memories.

That’s consumer goods.

For how to improve your retirement investing, see today’s column: How You Can Hack Your Retirement Plan.




I originally published this at Bloomberg, July 8, 2019. All of my Bloomberg columns can be found here and here


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