Retirement Saving: Myopia and Self‐Control
A great many people find that they lack the foresight and self‐control necessary to save adequately for retirement. But the spectrum is wide. Some people learn the keys to successful retirement planning. They learn that they need to deal with framing effects and behavioral biases. Notably, there are some aspects of mental accounting that are detrimental to accumulating retirement wealth, and other aspects that are helpful. Mental accounting can lead people to invest too conservatively, because it leads them to suffer from myopic loss aversion. At the same time, mental accounting can be constructively used to distinguish different categories of wealth, thereby helping people both to save money and thereafter to safeguard that money from being injudiciously spent. Dollar cost averaging is intriguing from a behavioral perspective. It combines the cultivation of good savings habits to deal with temptation, framing effects that reduce the pain of loss, and conventionality that mitigates feelings of regret.
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