Do you plan to retire early? :: Business Line

An early retirement goal may appear difficult at the start, but when in sight will make you work harder to achieve it.

Here is food for thought: Should you retire at 60 or aim for an early retirement? It turns out that retiring at 55 (or even early, if possible) is behaviourally good for you.

Achieving financial freedom is everyone’s dream. It is the state where you have enough passive income to pay for your living expenses. And all of us prefer to achieve it sooner than later. But why aim to retire by 55? If you do so and achieve your goal, you will no doubt be delighted, also you get additional 5 years to pursue your travel and other retirement goals.

But suppose you fail to achieve your objective of retiring early. Now, which would make you unhappy: not making an effort at all to retire by 55 or failing to retire by 55 despite making the effort? The former is referred to as the error of omission and the latter, the error of commission. It turns out that you will be more unhappy when you do not make an effort. That is also the reason why you feel miserable when a stock that you did not buy goes up, but not so unhappy when the one that you bought declines in value.

FORECASTING

This behaviour can perhaps be attributed to affective forecasting. It refers to forecasting our feelings about an event that could happen in the future. Today, you may believe that an adverse event that could happen in the future may have an intense effect on you, losing your job, for instance.

But what you do not consider when you simulate the feeling is that you may also experience positive events in the future at the same time the negative event happens.

Such positive events could well offset the pain of the negative event. That is one reason why you typically tend to suffer less pain when an adverse event actually happens.

Your experience may be no different if you fail to achieve your early-retirement objective.

Then, there is the goal-gradient hypothesis. You may have exhibited this behaviour with any of your store cards. Suppose you have accumulated 49,000 reward points on one of your store cards and require only 1,000 more points to enjoy a free trip to the Walt Disney World in Florida.

You will most likely frequent the store and purchase products to quickly accumulate the last 1,000 points. A goal in sight typically drives you to work harder. An early retirement goal is no different; it may appear difficult to achieve when you start, but could well become a reality as you near the retirement date.

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