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Financial planning principle

One of the problems I encounter in retirement planning for those in their late-50s is insufficient savings. Many times such people had always thought they would work into their mid-60s or so, and thus spent their discretionary money on children, homes, cars, vacations, etc., much of which should have gone to retirement savings.

They did not understand that as they aged, their views on retirement would change (they would not want to work in their 60s.) And by the time they recognized it, the money that should have been put aside regularly for retirment was gone.

I recently saw a term for this problem - people tend to think they will always feel the way they do now, when in fact they change their priorities as they age.

Does anyone know what this is called?

Reply to
HW "Skip" Weldon
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I've heard it called The Permanency Perception - regardless of what's happening at the moment most people perceive it as permanent. When times are good, everyone assumes they'll always be good and when times are bad everyone assumes they'll always be bad. This is part of the emotional response that drives the markets and creates blossoming bubbles.

Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

Another term to keep in mind along with it is "Future Shock." Sometimes people go into shock when things turn out differently from what they expected. Both notions are extremely important for financial planning I would say.

Just consider the number of people who, right now, are thinking about how to invest in bonds, how to increase retirement income, how to save better with higher rates, and so on. Think of how many people have posted in recent months concerning those issues. Then, go back a few years and look at how many people are far more concerned with growth stocks, the best companies for investments, holding stocks for the long term, and so on, while bonds and yields are hardly mentioned

Reply to
Don

I believe it is called "youth."

BB

Reply to
Blind Broccoli

That depends on how you define "youth". There were millions of people in the last couple of years that I would not call "young" that had some very good teachable moments in their financial life.

Reply to
mdk

It is almost impossible to imagine with any degree of accuracy as to how our lives are going to be 20 or 30 years from now. Most people will imagine being old, but they think they will enjoy food as much as they do now, or that they will have the energy and enthusiasm to do the things they enjoy now. I read a book a long time ago (can't remember which one), which said that that is the biggest problem with the way our brains work; they don't account for all variables when thinking about the future.

Sorry, can't specifically answer the question.

Anoop

Reply to
anoop

Indeed 20 or 30 years is a very long time. All kinds of catastrophes or major changes could happen in that time. Global warming, rise of the oceans and flooding of coastal cities, more wars (could the USA one day actually lose a war instead of a win or a draw?), impact of an asteroid from space, world wide flu epidemic, terrorism, truly big financial meltdown, the list goes on. The probability of any one of these things happening individually is very small. But the probabillity of AT LEAST ONE of them happening is not negligible.

Reply to
Don

Yes, true. We as individuals and groups can plan for contingencies, so that the impact on our financial lives is at least not devastating.

Reply to
dapperdobbs

One good rule might be: Assume in planning for the future that a big unforseen, possibly catastrophic event WILL DEFINITELY happen at some time in the future. Then, keep that constantly in mind as you go about deciding what investments are best. Of course, it is possible that such a big event might not ever happen, but better to be safe.

Go back a hundred years and look at the major wars, financial crashes, and catastrophes of various kinds that have occurred. Almost any 30 year period you might select would have at least one unforeseen happening with financial impact.

Reply to
Don

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