Can you envision your future? Maybe in the short term, but when it comes to creating a picture of your life 20 or 30 years from now, the task becomes much more challenging. That’s why a majority of people fail to achieve their long-term financial goals. A recent study by the Federal Reserve Board, Economic Well-Being of U.S. Households, revealed that only 11 percent of respondents not currently retired have dedicated “a lot” of thought to financial planning for their retirement. The study also found that while a little more than half of the respondents were saving some portion of their income, close to one-fifth were spending more than they earned.
Doug Loftus and Tom Curti, founders of Wealth Dimension Group, have found that many new clients struggle to describe in detail what they want in retirement, which leads to less than optimal decisions now and missed opportunities for the long term. Our Cincinnati-based certified financial planning firm works with clients to build personal financial plans that define and integrate individual, professional and family goals with available financial resources to establish a clear financial strategy. “When you start asking clients questions about retirement specifics, couples often grapple with defining their desired lifestyle,” according to Doug Loftus. “Our mission is to help clients create a real connection to their future, clarifying their vision and mapping out a detailed plan to achieve it. Many times clients underestimate what it will take to live comfortably. By creating this well-defined blueprint, our clients understand how their actions today will positively impact their outcome further down the road.”
So, why do people struggle to plan for their future? Researchers at Stanford University explored this inability to prepare and save for retirement. One factor that influences the ability to save for the future is temporal discounting, where people place higher value on rewards in the present than those occurring in the distant future. They struggle to connect the benefits of saving now with the positive outcomes that they will receive at a much later time.
Another factor that researchers considered is that people have trouble relating to their future self. Researchers proposed that people who could link themselves to their future image would change their current behavior. They performed experiments to determine if a glimpse into an older version of yourself would impact how you save for retirement. Using a virtual reality simulator to create an age-progressed image of participants, they created an environment for them to interact with their future selves. The results indicated that when participants viewed the aged image, they considered allocating significantly more money to a retirement account within the study. By identifying with their future selves, they showed an increased propensity to delay immediate monetary rewards to benefit themselves in the future.
So, how can people overcome these obstacles and connect to their future? Read Part II