A Tale of Two Retirements
We spend our lives in a constant battle between our present and future selves. Our present selves know that sitting up straight, wearing SPF, and going easy on the bottomless brunch has real benefits for our future selves. But no matter how hard we try, we just can’t seem to get it together.
Daniel Goldstein talked about this battle in a 2011 TED Talk. “Our present selves are in control,” he said. Our future selves, however, “don’t even have a lawyer present.”
It’s no wonder, then, that we find it so hard to save and plan for retirement. The Present wants to spend. The Future wants to save. Well, it wishes The Past had saved, anyway. It’s confusing.
One of the reasons our present selves struggle to put our future selves first, Goldstein argues, is that our future has never existed yet. We’ve never been old before and we’ve never been retired before, so how are we supposed to know what our lives will look like?
When our clients are struggling to prioritise their retirement, I like to present them with a Sliding Doors-style scenario. I suppose you could call it a Tale of Two Retirements (with apologies to Charles Dickens!).
Retirement 1: Burying your head in the sand
You’re worried that you’ll never be able to retire. You’re beginning to wish you’d started saving as a teenager. Even £20 a month would’ve been a start. But when your employer invited you to join the workplace pension scheme, you thought they must’ve been joking.
Of course, university flew by in a flash. You got a job, moved in with friends, and reluctantly enrolled in your workplace pension scheme. Before you knew it, you were buying a house, getting married in the countryside, and attending destination weddings each summer.
You stopped and started your pension contributions several times throughout your 20s, telling yourself you’d be rich and stable enough in your 30s to take retirement more seriously.
You have children now. You knew they’d be expensive but not this expensive. Christmas presents. Violin lessons. Ski trips in France.
You know you should increase your pension contributions, but you just can’t justify the cost due to so many financial obligations.
You might not be heading for a retirement of destitution, but you may have to let go of some of your dreams. You planned to travel the world, spoil your grandchildren, and give back to your community. Instead, you may have to get a part-time job or sell your ‘forever’ home and move to a cheaper area.
When you're older and your children do your shopping for you, they pay for it themselves, refusing to let you look at the receipt. It’s not the retirement you’d hoped for, and you’re angry with your past self for not making you a priority.
Retirement 2: Feeling the fear and taking action
You’re on track to retire comfortably, even though you started saving much later than your peers.
In your 20s, you spent your money on travel, your car and renovating your first home. Retirement was the last thing on your mind, until you reached your 30s and saw your own parents retire.
You type your age and geneder into the ONS’ life expectancy calculator and you’re reminded just how long life can be. If you were to retire at 60, like your parents, you’d potentially need to make your money stretch over 30 years. Panic starts to set in, so you make a plan.
With the help of a financial planner, you work out exactly how much money Future You would need to live a comfortable retirement.
If you’d started saving in your 20s, building a solid nest egg would be a walk in the park. Your planner reassures you that although your monthly contributions will be higher, your goals are still achievable. And if you start now, you won’t have to sacrifice holidays or time with your family in the present.
Finding the balance
When presented with examples as vivid as this, clients are often surprised that there’s still hope for them yet. It’s all about reassuring them that they can achieve their goals, as long as they’re proactive rather than avoidant.
And yet, in our efforts to work for our future selves, rather than against them, we need to be careful not to swing too far in the opposite direction.
For every client who’s underprepared for retirement, I have another who is overprepared. They only think of the future and find it impossible to live for today. They’ve got so used to squirreling money away, that the thought of spending it fills them with fear.
I have to remind them that although they have a chance of reaching the ripe old age of 100, they also could drop dead at 65 and have their savings raided by the taxman.
And then even if you are lucky enough to experience a 20 or 30-year retirement, how you spend it is just as important as how you save it.
According to The Times, due to the rising cost of living, retirees have been raiding their pension pots at higher rates than before, potentially risking their future financial security in the process.
Such a decision is understandable, but it’s ironic how quickly we regret our younger selves’ inability to save, while still making decisions that impact ourselves in 5, 10 or 15 years’ time.
As Daniel Goldstein says: “There's nobody to stick up for the future self. And so the present self can trounce all over its dreams.” Perhaps that’s where we come in. You might not be able to stick up for your future self, but we sure as hell will!