Researchers from the University of California Los Angeles (UCLA) have conducted a study to gain insight into why people tend to struggle with connecting with their future selves, thereby not making adequate future plans – particularly when it comes to retirement. The research found that people struggle to connect with their future selves because they don’t see their future selves as who they are but in fact as a stranger.
The research further uncovered that people who are able to connect with their future selves are more likely to allocate a higher proportion of their money to retirement savings compared to participants who are struggling with that connection.
But connecting with your future self is easier said than done.
“As far as our brains are concerned, the future is more uncertain than the present, and the further away from today that future feels, the harder it is to imagine. This causes an ‘empathy gap’, where we perceive our future selves as less important than who we are now and underestimate the detrimental effects our choices will have later in life,” says Sharon Moller, Financial Planning Coach at Old Mutual Wealth.
Reflecting this issue is the fact that according to the latest 2021 Old Mutual Savings & Investment Monitor, released last month, nearly one-third of working South Africans (27%) have no pension plan, provident fund or retirement annuity.
While this may be a concerning number, our seeming inability to save for our retirement shouldn’t come as a complete surprise. Retirement has traditionally been thought of as working until a predetermined age and then leaving the formal employment sector. This further widens the empathy gap as it makes our retirement an even harder concept to grasp, explains Moller.
“We need to change the narrative around Retirement. What if I told you that your retirement starts the day you find your life purpose? If what you do for a living is aligned with your purpose, retirement means something entirely different. Instead of saving to some end point to formal employment, you get to plan for how living out that purpose will evolve as you age,” Moller says.
In other words, “the day you find purpose in what you do for money is the day you retire from working and this has nothing to do with a set retirement age somewhere in the future,” proclaims Moller
A purpose-driven approach makes planning the shift from formal employment to the next phase of our lives exciting and empowering as opposed to overwhelming and gives us deep motivation to stay our chosen course.
Conversations about retirement shouldn’t only be about wealth creation or saving for the future, says Moller.
Effective retirement planning should focus on finding your life purpose and then orienting towards that.
The role of a financial planner
A financial planner should be able to facilitate the conversations needed to find out what your purpose is, and the relationship between that purpose and the wealth creation aspect of your plan.
“Money should be seen as a tool, rather than a goal,” Moller explains. “A good financial planner will help their client to create a plan that keeps moving them closer to the outcome they are hoping for.”
This will also help you to prepare for unexpected future events, as we experienced with the Covid-19 pandemic. According to the 2021 Old Mutual Savings & Investment Monitor, 42% of South Africans are currently experiencing high levels of financial stress. This kind of stress can make it even harder to turn your mind to retirement planning, admits Moller.
“But preparing for these eventualities makes more sense when we can fully envision the future we are trying to create and protect. It’s never too late to start saving and it’s never too late to start figuring out your purpose. When you live to your purpose, you’re doing what you love, and money will always follow.”
“There are always going to be barriers and obstacles in our way, but if we are clear on our purpose, the outcome should remain the same no matter the eventual route,” Moller concludes.