Close your eyes: Can you visualize your retirement?

Your view ahead may be blocked by distance or unrealistic expectations. Speaking with those who are already there can improve your vision.

30 Jun 2017

Planning is all about being prepared for what’s ahead—for what you expect and what you don’t. If you’re imagining a time that is just around the corner, you could be pretty good at picturing it. But what if you’re looking 20, 30 or 40 years ahead?

“There is nothing in our evolutionary background to prepare us for that,” said Laura Carstensen, founding director of the Stanford Center on Longevity, during “Eighty Is the New Sixty,” a recent UBS panel discussion. “We evolved on the African plains during a time when the average life expectancy was 18 or 19.”

Key takeaways

  • Long-term planning may not come naturally, but as longevity increases, it’s becoming more essential.
  • People often delay planning for retirement or have mistaken assumptions about what will make them happy.
  • To get a clearer view of your future, talk with people who have already reached that stage of life.
  • Counter your natural “optimism bias” by planning for possible challenges.
  • Work with your Financial Advisor, who can help you discover your goals.

Why we procrastinate

These days, in contrast, long-range forecasting is essential—and very challenging. The average American now lives to be almost 80. That’s 30 years longer than in 1900, giving us a “longevity dividend” to spend as we please. Yet deciding from among almost infinite possibilities—and preparing financially for a time stretching so far from today—can be tough.

If I take my current concerns and values and assume that’s what I’ll want to do when I’m 60 or 70, I’m going to miss by a mile.

- Michael Crook

Relying on your vision of what you think the future holds could lead to mistakes if behavioral biases paint an overly rosy view. It’s important to overcome those biases, to be realistic while thinking broadly and differently about what’s to come.

And yet we put off thinking about it, often until that distant future is suddenly upon us. “People find themselves in their 50s or 60s, and maybe they’ve sold a business, and now they have to find something completely new to do for the rest of their lives,” said panelist Michael Crook, Head Americas UHNW and Institutional Strategy. “What does that look like? It’s decades of your life that can be very productive. Yet many of us spend more time planning for vacation than for that period in life.”

“If I take my current concerns and values and assume that’s what I’ll want to do when I’m 60 or 70, I’m going to miss by a mile,” added Crook.

Consult the experts

One alternative to making unwarranted assumptions about what you may want decades from now is to talk with those who are already there. “A conversation with people who are in that stage of life can be very beneficial,” suggested Svetlana Gherzi, Behavioral Finance Specialist for UBS CIO Americas, Wealth Management . “Their values and experiences can often be a better predictor of what you might value in retirement than trying to forecast that on your own.”

“We have the ability to imagine the future, but we're not that great at forecasting it correctly,” Gherzi said. “Think about your values 10 or 15 years ago. Now compare them to what you believe today. Your values have probably changed. In fact, research shows that when people think about the past, they acknowledge that their goals have changed significantly over time. But when people think about future goals, they fail to predict changes.”

Having these conversations can also help counter behavioral biases—modes of thought that are human and natural but not very helpful. “When we think about the future, 84% of what we imagine is positive,” said Gherzi. Our relationships will be happy, our children accomplished and our finances secure. But this rose-tinted view can be damaging, she says, if we don’t prepare for some of the things that could mar retirement—cognitive problems or other health issues, for example, or savings that have been diminished by economic turbulence. Recognizing what might happen can help us take preventive action, such as buying long-term care insurance at a younger age when premiums are affordable or diversifying a concentrated stock portfolio to make a financial plan less vulnerable to market volatility.

Your Financial Advisor can also talk with you about how to plan more clearly. For example, Gherzi noted, people tend to be much better at recognition than recollection. “When we try to recall our goals for the future, we usually miss about half of them,” she said. To counter this, your Financial Advisor can share a list of categories and help you consider things more broadly to help spark your own ideas about what will be most important to you.

“People tend to think of all of old age as the last waltz, as opposed to this 30-year period of time, or maybe longer, where you’re happy and healthy and able to do whatever you want to do.” – Laura Carstensen

Seize the possibilities

As others who have entered the next stages of their lives can tell you, the possibilities are endless. “People tend to think of all of old age as the last waltz,” said Carstensen, “as opposed to this 30-year period of time, and maybe longer, where you’re happy and healthy and able to do whatever you want to do.” Working toward a clearer vision of that future can help you make it what you want it to be.