Understanding “You”

Economists have borrowed a page from the psychologists when they realized that the person we are from high school, middle age and retirement are different.  More importantly, we don’t know what will make our future selves happy. 

       Economist George Lowenstein says it’s called projection bias. That is, we put too much emphasis on our present tastes instead of thinking about what we might want decades down the road.  Aging changes us so much that it’s like different selves time-sharing our bodies. But the early ones create situations that the later ones have to live with. The indifferent student you were in high school leaves your next self wishing you had studied a foreign language.

       In our careers, we invest into retirement programs, but we can’t really understand what our older selves might want or need.   Investments can lose value and our ability to work later in life might be impeded.  Studies show that older retirees are happier with guaranteed lifetime income. 

       Quoted in Money, Lowenstein says imagining how you will feel when you are older is not the answer. It’s better to look at the facts and consider annuitized income. The risk of outliving your money is real.


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