We told our kids to “do your best.” When we think about our retirement saving and planning, we tell ourselves “I’m doing the best I can.” The problem: That’s the wrong approach.
Not according to the experts in human behavior.
I read an article recently that summarized many psychological studies on the relationships between goal-setting behavior and outcomes. Here is one conclusion that apparently is beyond dispute:
Both physical and cognitive tasks seemed to be spurred on by specific goals. In a sample of engineers and scientists, performance increased when goals were specific compared with when they were told to do their best or not given any goal at all.
This mostly seems intuitive although some of us probably were unaware that deciding to “do our best” was of little or no consequence in directing our behavior in a positive way.
So we know that having specific goals works better than having no goals or just a “do your best” goal. When it comes to retirement goals, is that all we need to know?
Not exactly. There is more to it than that. The research studies also establish these principles about goal-setting and outcomes:
Goals can be too specific. Some goals are so narrowly focused that you can become fixated on them. This results in the “can’t see the forest because of the trees” phenomenon. You lose sight of the big retirement planning picture. In other words, goals should serve an overall purpose and not merely dictate our behavior.
You can have too many goals. The research shows that people who have too many goals tend to concentrate on the easy ones at the expense of those that are more difficult. If the difficult goals are more important (which is often the case in the financial realm), the overall plan is in trouble.
Goals can be too short-term: Psychologists tell us that people who have short-term goals tend to engage in short-term thinking. If there is one area where short-term thinking is wrong, it’s planning for your retirement. The writer of the article made the observation that it’s difficult to get a cab on a rainy day in New York because cab drivers do such a good business in the rain that they go home early, after meeting their daily revenue target. Think of the profits that are sacrificed as a result of acting on that short-term goal.
These are generalizations of course but they clearly apply to our retirement planning goals. It can take time and work to achieve a proper balance between meaningless goals (“do your best”) and goals that are more likely to provide a desired outcome. I need to spend some time on this very subject in evaluating our goals.
The writer of the article made a final point about the research: Setting goals for yourself may be better than having others set goals for you. When you are in control of the goals, you can adapt on the fly.
Here is a link to the full article: The Dark Side of Goal-Setting