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A podcast designed to help retirees and those nearing retirement navigate finances and life planning with expert insights from financial advisor Trevor Lawson. Tune in for practical strategies and inspiring ideas to ensure your retirement years are purposeful, fulfilling, and truly your best chapter yet.
*Securities and investment advisory services offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Branch phone: 919-546-0400.
RWOP - Episode 27
Trevor Lawson: [00:00:00] Welcome to The Retirement With and On Purpose Podcast. I'm your host, Trevor Lawson, and this show is all about helping you not just reach retirement. But truly thrive in it. You've put in the work. Now let's make sure you can enjoy every moment to the fullest.
Welcome back, ladies and gentlemen. Today's episode will round out this mini series on cognitive biases and how they affect our decision making process and investors behavior.
And today, we'll be using an article written by Rick Kahler titled Underestimating Your Life Expectancy. Don't let your Brain Shrink Your Retirement Benefits to guide our conversation and highlight
00:00:55:11
a couple of key cognitive biases and how they're impacting a real life situation, especially right now surrounding Social Security benefits. In this article, Mr. Kahler says many people apparently assume they won't live long enough to reach their break even age. The point at which the total benefits received starting their Social Security early would be equal to those received starting later. So this is this, this article. And in today's conversation is all about this decision around Social Security and how a cognitive bias or biases play into this process. So security administration data suggests that the average mortality age is 7 to 9 years beyond the break even age, meaning many people will live significantly longer than they expect. So why do so many people consistently underestimate their lifespan and take Social Security early? They're thinking,
Mr. Kaylor suggest, is influenced by the money, scripts, financial circumstances, stories and emotions that drive a person's cognitive biases or mental shortcuts.
00:02:03:01 - 00:02:05:18
Here are those examples. The availability heuristic. So we often rely on immediate examples that come to mind when considering a specific topic or decision. The untimely death of a family member or friend, or media coverage of premature deaths are more memorable and emotionally impactful than the uneventful deaths of people living well into their 80s and 90s. This may encourage people to overestimate the likelihood of dying young. If you watch the news, you know exactly where he's coming from here. And then, with all the back and forth recently around Social Security or the benefits going to change, is the Social Security trust going to run out in the next several years? All of this kind of plays into this availability heuristic that can affect our decision making process around when to start Social Security, the other optimism bias and pessimism bias.
00:02:59:14
These are our tendencies to believe that either positive or negative outcomes are more likely for ourselves than for others. Author writes, pessimism bias, which shapes his own thinking, is what my wife describes as going to the dark side almost involuntarily. It can foster a bleak view of one's health and longevity. I've got to be in the camp of the world's worst, of going to the worst case scenario with with my health.
I think I get it honest from my mom, but, you know, the availability right now heuristic of having web MD and just typing in, you know, your symptoms and getting all these different kind of scenarios of what, what your, your symptom could be caused by, leads me down a, a path towards pessimism, bias and the fact that my mom's father passed away at a young age from heart disease really kind of shapes my my bias when it comes to health towards this pessimism bias.
00:03:59:04
So I can I can definitely empathize here. And see how the availability heuristic and this optimism and pessimism bias can shape our decision to go in and start Social Security while we can. Before our health declines or before. So security goes away. The other is present bias temporal discounting. So we tend to give stronger weight to payoffs that are closer to the present time than to those in the future.
This bias can make the immediate financial gain of taking benefits at 62 seem more attractive than the delayed, but larger benefits at 70.
Mr. Kahler here closes by saying, finally and ironically, it's possible that one reason people under estimate their life expectancy is our reluctance to think or talk about death, given how hard it is to discuss old age care options and estate planning. Maybe we simply can't imagine our own final years well enough to think clearly about providing financially for them. And I also agree with that. There's a great, podcast on, Doctor Peter Atlas podcast recently talking about lessons from the dying. And then The Tibetan Book of Living and Dying is another great resource to help
00:05:08:02
to help us get comfortable talking about a death, which in turn can also help our decision making process around things like when to start, Social Security, and other other decisions that will inevitably tie into our our mortality.
In closing, Mr. Kilgore talks about yet failing to think about living into our 80s and 90s can have significant negative financial implications. Many people who opt to take Social Security early are trying to get the most return possible from a lifetime of work and the taxes they have paid in the system. Yet, given the difference between our assumptions and the statistics about life expectancy, early filing can result in the exactly the opposite.
So the reason I'm referencing this article here is just because it really helps kind of capture how a lot of these cognitive biases are impacting real world decisions that are very timely, especially right now as as he alluded to around Social Security. So being aware of these different biases can at least put us in a position to better evaluate our decision making process and make sure we're not only thinking about it from a short term perspective, but also how that decision will impact our money and livelihood over the long term.
00:06:28:07
I hope you enjoyed this series on cognitive biases and how they affect our behavior. And I hope next time you go to make a a key financial decision, you'll reflect on some of these biases and how they could be tied in to your decision making process. Until next time, take care and I look forward to being with you again soon.
00:06:50:14
Thanks for tuning in to The Retirement with and on Purpose podcast. I hope you're walking away with new ideas and a fresh perspective on how to make the most of your retirement journey. And remember, retirement isn't the end. It's your time to live with purpose. Until next time, I'm Trevor Lawson. Here's to a fulfilling and thriving retirement.