Peyton's Retirement Decision and How it Affects Me

"So when is Peyton going to retire?"

I can hear Big Al, on the radio, reply "Hey man, back off. I need some time to think about this."

Big Al might as well be asking himself, "When am I going to retire?" Or, "How?"

The more important the decision is we have to make, the worse we get at making that decision.

In his book "Misbehaving: The Making of Behavioral Economics," Richard Thaler describes how we learn. We learn by repetition and constant feedback. When shopping at a grocery store, we have a lot of opportunities to try different brands of breads, milks, cereals, and other foods. The stakes are low and we have a plethora of opportunities to explore our options.

When choosing a spouse, the stakes are much higher. We want to get that decision right, but don't have a lot of chances to learn whether this decision is a good one. We take a chance and a mistake is costly. A second or third chance at this big decision is rare and expensive.

When buying a car, a poor decision is not as costly as divorce, but we don't have as many chances to get it right as we do when we choose between a Fuji or a Golden Delicious apple, which is an inexpensive choice. Similarly, with a house, or other big decisions, the stakes are high and we don't get many chances to get it right. We don't get enough repetition or the feedback we need to make a good choice.

Thaler's point: the bigger the decision we have to make, the lower the quality of our decision-making.

Line up all these items that you're going to decide upon, from least important to most important, and you have the Binmore Continuum, named after an economist who once disagreed with Thaler (and helped him improve his thinking). The bigger the stakes, the lower the quality of your decision.

Guess what the single biggest decision Thaler puts on the continuum? It's Peyton's problem: when (and how) do I retire?

Even more risky than the choice we make in a spouse, says Thaler, is how we invest for retirement. We don't want to get that one wrong.

To make good decisions, you need repetition and feedback. Guess who gets that? Your advisors at A&I Financial Services, who have helped hundreds of families make the right decisions, in alignment with their values, over decades.

Lean on your experts, say the experts, to get the big decisions right. And, Peyton, Big Al, take all the time you need.

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