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Getting Your Personal Bias Out of Retirement Planning

Let’s check your bias.  Read the following story and then tell me what your response would be.
One of the studies by the late Ziva Kunda brought a group of subjects into a lab and told them that they would be playing a “trivia” game. Before they started, they watched someone else play, to get the hang of the game.  However, this person already knew the answers and got all the questions correct, becoming the winner.  However, before they watched, half of the subjects were told that the winner would be on their team, while the other half were told they would be on the opposing team.
After this first round of trivia playing was over, each group was asked about the winner’s success.  The one group that were told they would be on the winner’s team were impressed, while those who expected to play against the winner were dismissive.  They attributed the player’s good performance to luck rather than skill, showing a self-serving bias.
It’s interesting to note from this little experiment that the exact same event receives diametrically opposed interpretations depending upon whose side you’re on.
Now, let’s apply this to you and your spending habits and what’s going to happen to you in retirement.  Knowing that we are all biased in some way, you are no doubt biased about your own success rate when it comes to retirement planning… you will naturally prepare the numbers using all your hopes and wishes and not necessarily based on a reliable reality.
Thus, when you are planning for retirement, you must leave all your own biases at the front door.  If you don’t, you ExcitedGuywill make mistakes that could cost you big time!  A simple technique to be able to do this is to keep a journal for several months and years about what you think you will have at retirement. Make projections, then use these journal entries to help you face changes that will occur to your financial situation over an extended period of time. This will help you see things realistically and get your own bias out of retirement planning because you will notice trends in your spending and saving behavior that will affect how well you will be able to plan for retirement. Knowing your skills and limitations based on a history of financial decision-making will help you overcome issues and make more predictable plans.  These journal entries can also help you re-check your numbers and will act as a guiding light.
A ship must have two stars by which it is guided. As the ship moves away from one star and toward another its captain knows exactly what direction the ship is headed.  It is the same for you… you must know where you are realistically in terms of current income, spending habits, and debt (your first star) and you must know what your actual goals for retirement should be, including an age, what income you can anticipate at that time, etc. (your second star). As you refer to your journal entries and read what you have recorded over an extended period of time, you will be able to see where your first star is and set a course to reach the second star based on reasonable data that has taken your personal emotional bias out of everything.

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