SHORTER, DUMBER, POORER THAN WE THINK

This is based on an article I wrote recently for supersavvy.com.au for an audience of Australians with superannuation (which is what we call retirement savings plans in Australia). Whilst there are specific references to Australia, the story is based on universal truth (as proved by authors Stephen Dubner and Steven Levitt).

You are no doubt hoping that your business will earn you enough to ensure a comfortable life now and in retirement. If you need an extra bit of persuasion, this article might just do it.

WHY WE LIE TO OURSELVES ABOUT HOW MUCH WE WILL NEED IN RETIREMENT

In their books, Freakonomics and Superfreakonomics, economist Steven Levitt and journalist Stephen Dubner look at a host of phenomena and try to explain their existence from a statistical or economic perspective. In the first of their books, one of the things the authors looked at was online dating services. Specifically, they wondered if users of these services were truthful about their personal details.

What Dubner and Levitt reveal is that online dating service customers exaggerate their height, their looks and intelligence and understate their weight to lure potential partners. The motives are pretty clear - to give themselves a better chance of a response. If an online dater is brutally honest about his or her appearance, intelligence or wealth, how many replies do you think there would be?

The lie only works until the first face-to-face date, when the short, fat, dumb truth is exposed. Since both parties are likely to have exaggerated, neither comments on the other’s lies.

Is there an underlying inability to face the truth about ourselves? Might it also explains why so many Australians underestimate how much they’ll need in retirement? Do you have to fight human nature to retire in comfort?

The CEO of one superannuation fund wrote recently in the Adelaide Advertiser on the subject of Australians underestimating how much they will need for a comfortable retirement.

The numbers are scary. Based on current average annual returns, a couple would need close to $1,000,000 in super savings to live comfortably in retirement. A single person would need close to $800,000.

So much for the ideal. Now let’s look at reality.

Only 10% of Australians have more than $100,000 in their super accounts.

MILLIONS OF 35-44 YEAR OLDS WILL STRUGGLE IN RETIREMENT

To quote from a 2007 report by the Association of Superannuation Funds of Australia -

“On the basis of the current average superannuation balance and average income of those aged 35 to 44 and the assumption of only compulsory superannuation contributions being made, the average retirement superannuation payout at age 60 for a male currently aged 35 to 44 would be $183,000, while for a female it would only be $93,000”

Considering these figures an average 35-44 year old couple would be $750,000 short when they retire.

Australians are starting to receive their annual statements from their super funds. For a lot of people it will be a rude reminder of how far away from their savings goal they are.

I am guessing that things aren’t all that different in your country. Do not think you can afford life’s little luxuries if you haven’t managed to accrue $1,000,000 as a couple by the time you retire. For me, these figures are a powerful motivation to work hard at my business.

If you are working for yourself, it is probably because you hope that you will be able to earn more than you could as someone’s employee. But as Dubner and Levitt reveal, we are all guilty of exaggerating what we are capable of. What that says to me is that I should not let pride or self-delusion prevent me from taking whatever help I can get from those who know more and who have been there before me.