My mum hates is when there is an iOS update on her iPhone. She is used to the way her phone works and prefers it when it stays the way it is. Never mind that they are fixing bugs that she will give out about and make her phone better, she doesn’t want change.
This is called Status Quo bias. Where we prefer things to stay the same by doing nothing. And it is one of the biggest reasons why people do not plan for their retirement.
A feature of status quo bias is that people look at what they are going to lose, rather than what they are going to gain. It is a big issue in the US with the Affordable Care Act. President Obama had to fight tooth and nail to get the ACA through Congress and the Democrats suffered a lot of losses in the mid term elections afterwards. But now it is in place, the Republicans are having trouble in replacing as people look at what they will lose (especially coverage of pre-existing conditions) rather than what they will gain under a new version.
When it comes to planning for your retirement, people look at having to go without now so they can continue to enjoy life well into retirement. They like spending their money now and being able to buy things or go on trips without having to think about whether they have enough money to do so. By putting money away now, they won’t be able to do that anymore and they will actually have to plan for major expenses and budget.
Longevity is a feature of status quo bias; that is that things will continue to be the way that you like it. Except that is nonsense. If you earn a good salary now and spend all your money now, the only way that will continue is if you continue to work and earn that level of income.
If you do not intend to work forever, but have not made a change to your spending habits and invested the savings, you will have to work until the State tells you that you can stop working. For anyone born after 1961, that is age 68 but it may be later. They will then pay you €12,911 a year. While the State pension is quite generous, it can be a big drop in income and will require a major change in lifestyle for someone who has lived life on an income of €100,000 a year.
How big of a shock to the system will it be when you stop working at 68 and there is an 87% drop in income instead of living on a smaller income for your working lifetime and spending those savings throughout your 60’s onwards?
If you have any questions, send me an email at firstname.lastname@example.org