Lots of people struggle to make retirement planning decisions. These decisions may involve selecting retirement investments or even where to live when it’s time to retire. The problem may be that you have too many choices.
Last week I spoke to Cliff Davidson, the developer who built our condo at Long Branch Lakes. He had just returned from a “Live South” real estate show in Chicago. These consumer trade shows are offered in major cities all across the snow belt. The shows target folks who are tired of the snow, cold and high taxes, with exhibitors enticing them to move to retirement communities located in the warmer southern states. The Long Branch Lakes sales folks attend many of these shows to get leads for potential property buyers. This was Cliff’s first show. (I am not affiliated with the Live South group in any way but if you want to learn more about their communities and shows, here is the link.)
In addition to exhibitors offering information about their retirement communities, the show offers retirement seminars. Cliff attended a couple of these so he could learn more about the folks who are interested in retirement communities in the south. One of the seminar presenters talked about the difficulty boomers and others have in making decisions about where to live when they retire. The source of the difficulty, according to this expert, is that these folks are confronted by too many retirement choices. This can overwhelm the decision-making process, causing the person to either not make any decision or to make the default selection, which is to stay put.
I had heard about this “too many choices” problem in my role as trustee of our firm’s 401k plan. Studies of employees had shown that if their employer’s 401k plan had more than a handful of investment options, the employees tended to make bad or default decisions and keep their money in money market funds (or not participate at all.) This was true even for sophisticated plan participants. (Source)
These studies are consistent with psychological and consumer research that demonstrates that too many choices can tax the brain to the point that thinking and decision-making is impaired. (Source)
So how do we fight through the noise and make good retirement decisions? I suppose the best strategy is to focus our initial decision-making on eliminating groups of choices. Remember when we were taking the SAT and other multiple choice tests? The test-taking experts advised us to eliminate the obvious wrong answers first, making it easier to concentrate on finding the correct answer.
I have done this myself. For example, a number of years ago I decided to exclude all actively-managed funds from our possible retirement investment choices. I then eliminated any index funds that had expense ratios greater than 1%. That eventually led me to concentrate on Vanguard funds, making it easier to find and select something that suited our desired allocation and risk tolerance.
A similar process could be followed in deciding on a retirement destination. For example, a snow-belter may think that “living south” is the way to go. (We – as former yankees – made that decision a long time ago.) That option could first be explored by spending several weeks in summer weather in the south, because the summer heat and humidity bothers some folks who have lived their entire lives in the north. (It can bother me too, but not as much as a harsh northern winter. )
This initial exploration of southern living could help you decide whether the southern states should stay on your list of choices or be removed. A similar process could be followed for exploring Arizona and the southwest.
The key is to recognize that having too many choices may impair decision-making about your plan for retirement. Follow an orderly process to narrow the choices down, then make a decision.
Do you agree?