As anyone who knows me will attest, I’m a science guy. I’m always searching for new ways to interpret the almost limitless amount of data out there to help predict future financial performance. If there isn’t an existing answer, I build an algorithm to find one.
So I was stopped in my tracks when reading a recent article in the Globe & Mail about people who were actually choosing to take early CPP payments, against their own self-interest. Why do retirees fear taking CPP late?
It’s all there in black and white: unless you are pretty certain that your lifespan is going to be shorter than average, there is next to no advantage to cashing in your chips early.
So what’s leading people to make that clearly illogical choice? Are they afraid of missing out on their full CPP investment? Is their income stream inadequate to provide for their needs? Clearly, human nature favours the bird in hand, instead of delaying gratification. And there’s clearly some anxiety about the health of CPP overall.
The article puts forward its own reasoning: “Of all the possible explanations for why people don’t act in their best interests, the most likely perhaps is that an even greater fear lurks beneath the surface: the fear that they will leave money on the table in the event of early death.”
But the fact remains that this decision, for the majority of the population, is irrational, in that it cannot be rationalized by the economics involved.
It is accepted wisdom that certain market movements can be traced to psychology. That makes it even more important for Barbara and me to evaluate the thinking behind people’s choices. Our responsibility is to advocate for what’s in people’s best long-term interest – even if that’s not in sync with their emotions.
In this case, simply giving our clients what they want to hear is not the right answer. We must inform our clients about the consequences, strip away the emotions, and help them to make the best decision for them and their families.
If you or someone you know is looking for financial advisors who don’t rely on the simplest and most expedient advice, please give us a call.