An Experiment That Could Change The Way You View Retirement


There is a massive disconnect in the way we think about retirement and the way we act. Most of us know the critical importance of retirement saving. Most of us have good intentions when it comes to saving. None of us want to suffer through a post-work decline in quality of life.

Yet none of it seems to make a difference. Retirement numbers in the U.S. are grim -- and getting worse. The Center for Retirement Research estimates that half of U.S. workers have almost nothing saved. Millions more -- including workers over 50 -- haven't saved nearly enough.

So what's behind this gap between thought, feeling and action? Why are so many of us acting in direct opposition to our own self-interest?

One academic has an answer that might surprise you.

The future self experiment

We're all familiar with the phrase "if I knew then what I know now." Many of us have daydreamed about going back in time to counsel our younger selves against some misstep we've taken. We can identify so closely with the person we used to be -- he's just a younger version of ourselves.

Creating that kind of intellectual and emotional link with our future self is another matter entirely. It's just too abstract. Many of us are also in a soft kind of denial about how we'll age. Aging 20 or 30 years almost seems impossible -- until it actually happens. Yet by then we'll be living with the consequences of the choices we make today.

Psychologists have long understood this phenomenon. There's even a term for it -- "excessive discounting of the future." We opt for immediate rewards over future rewards -- even when the future rewards are much greater, or when the penalties are severe. It's hard to be empathetic toward an abstraction.

An NYU academic named Hal Herschfeld became intrigued by our tendency to discount the future. He decided to conduct a study to see if retirement savings behavior could be modified by reducing discounting of the future. His method? Age progressed, virtual reality (VR) renderings of participants future selves.

Fighting human nature

In ancient mythology, the Greek hero Odysseus (Ulysses) was the triumphant king of Ithaca.  After defeating Troy in a long and bloody war, Odysseus and his men sailed home for Greece. They were waylaid, however, by a cyclops, a six-headed monster and a sorceress.  Knowing he could not resist the tempting song of sirens, Odysseus tied himself to the mast of the ship to prevent himself from jumping overboard.

That, in essence, is one of our primary methods of encouraging saving. We place constraints on ourselves, in the form of early withdrawal penalties and other fees. Yet these constraints just aren't strong enough to seriously alter behavior. To do that, we need to change the way we think about future outcomes -- and our future selves.

Herschfeld's study got to the core of this perception. Those involved were given immersive VR equipment. Using these aids, they were able to interact with a detailed version of their future selves.

The outcome? Participants who interacted with an age progressed personal avatar were suddenly more likely to modify their savings behavior. On average, they opted to donate twice as much money to a hypothetical savings account.

Fundamentally, they were no longer quite so estranged from their future selves. Saving today no longer felt like a charitable act toward some future stranger. Instead, those in the study began to view it through the prism of their own self interest.

Priority Action: What does this mean for me?

Delaying present wants for future needs is one of the key challenges all of us must face. Our biology works against us. It takes a serious effort to overcome temporal discounting and other cognitive tendencies.

Yet most of us must make this effort to be successful.  We don't all have access to the latest VR equipment. Yet we can take the time to really think about how we discount the future. before making any financial decision.

Some pertinent questions to ask:

  • Am I assigning too much value to the security of my current self vs. my future self?
  • Existing emotions are far more powerful than emotions we expect to feel in the future. Are my emotions clouding my financial judgment?
  • What can I do today to improve my long-term financial outlook? Should I pursue increased retirement contributions? More education?
  • What can I eliminate from my budget and re-route into my retirement account?

Feeling empathy for the person you were is easy. It's far more difficult to act generously toward your future self. Yet for many of us, generating and sustaining this empathy could be the key to a happy, healthy and stable retirement.

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