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Lying to Yourself

One of my favorite types of stories to write about is when people say one thing and do another. This gap between what economics call “declared preferences” (what you say you’ll do) and “expressed preferences” (what you actually do) does not necessarily constitute a lie. Sometimes we say we will do something with the full belief that we will do it. But as willing as the spirit may be, the flesh is often less so.

Today’s Wall Street Journal has a special section on retirement. One article contains a chart, with data derived from McKinsey & Co. research, showing the kind of things that pre-retirees expect they will do upon retiring, and then what they actually do once they retire. Here are the examples:

Will take on work upon retirement
Pre-retirees’ expectation: 36%
Retirees’ reality: 10%

Will significantly reduce discretionary spending
Pre-retirees’ expectation: 32%
Retirees’ reality: 10%

Will downsize home/relocate
Pre-retirees’ expectation: 31%
Retirees’ reality: 7%

Will take on home-equity loan/line or reverse mortgage
Pre-retirees’ expectation: 13%
Retirees’ reality: 13%

It is pretty telling that the only category in which the reality meets the expectations is the last one, in which people need to borrow money. But I am guessing that this match is a bit misleading. The 13% of people who expect they will leverage their house are probably not the same 13% who actually do leverage their house.

If I were a financial advisor, I would collect these and similar data in an effort to scare my clients into believing how capable they are of lying to themselves. They may not mean to lie, and they may have no idea they are lying. But just as people are bad at predicting how happy something will make them, they are probably just as bad at picturing how unhappy they will be once they are retired with less money than they planned on having.