Why You Can't Plan for Retirement

By Doug Short

"Me first!"

"I've got shotgun!"

"Looking out for number one!"

These catchphrases reveal two aspects of human nature:

But because we spend most of our lives living for today, with ourselves at the center, our prospects for a secure retirement are dim.

Mother Nature and our brains
Forbes recently reported on some preliminary research from the Stanford Center on Longevity that has stunning implications for retirement planning. Based on functional magnetic resonance imaging (fMRI), researchers discovered that when "people are asked to imagine themselves in retirement, the parts of their brains that usually 'light up' when they think about themselves don't light up at all. It's as if they were thinking about a stranger."

In other words, you're incapable of planning for retirement because you can't even see yourself there.

My personal theory is that this blind spot about our future selves is a relic from our biological past. During the Stone Age, average life spans didn't extend beyond the child-rearing years. There was no need to comprehend a future self. After all, the allure of retirement planning can't quite match those pressing needs of food, shelter, safety, and reproduction.

The more things change ...
Unfortunately, a 2007 survey shows that baby boomers haven't progressed too far from that Stone Age point of view. Some 61% have less than $150,000 in savings, and an astonishing 28% have less than $10,000.

But the first wave of boomers could have made money hand over fist simply by investing in the world around them. They were surrounded by solid winners.

Consider the boomer household in 1976, 30 years after the onset of this demographic explosion. Baby boomers loved their General Electric (NYSE: GE) appliances and filled their cabinets with products from Procter & Gamble (NYSE: PG) and Johnson & Johnson (NYSE: JNJ). They stopped by the Exxon station (today's ExxonMobil (NYSE: XOM)) on the way to McDonald's (NYSE: MCD). Philip Morris' Marlboro Man (today's Altria Group (NYSE: MO)) was fast becoming an icon for the world's most popular cigarette.

If stock picking was too daunting for our boomer household, there was another option: In 1976, Vanguard launched its S&P 500 index fund to track the market at large.

Boomer Stock Picks

Return since 1/2/1976

$1,000 Becomes

Altria

35,173%

$352,727

ExxonMobil

15,408%

$155,085

General Electric

10,242%

$103,417

Johnson & Johnson

6,877%

$69,773

McDonald's

5,856%

$59,564

Procter & Gamble

6,518%

$66,179

Unfortunately, as we now know, too few boomers were willing to invest money for that distant stranger -- the elder self.

Digital imagery to the rescue?
Hindsight, of course, is 20/20, but the Stanford Center on Longevity is working to help more folks extend their sense of self beyond the present. For example, Hal Ersner-Hershfield, a graduate student and researcher at the center, and communications professor Jeremy Bailenson found that people who interacted with a digitally aged picture of themselves allocated twice as much money to retirement after being given $1,000 to spend or invest.

While only 30 people have been tested thus far, it's a fascinating breakthrough in a longstanding problem.