Keeping up with the Joneses: why comparison behavior isn't helpful to retirement planning

Comparison behavior drives a distinction bias: employees compare their lives to their friends on a minute, fixed detail but blinds the employee to all the other variables involved with the trip or retirement spending.

Picturing what your life will be like in retirement can be a helpful tool for staying motivated towards retirement readiness.  Imaging trips, activities and other key details can help employees stay on track with savings and budgets, unless those pictures and plans are too similar to their neighbors.  Comparing your results to others can be motivating to some, but when comparing turns into trying to keep up with your social circle, sometimes called “Keeping up with the Jones,” it can harm results instead.

While finding pictures and posts on social media websites of colleagues and friends who recently retired can be inspiring, many employees (nearly one quarter) found themselves envious instead of inspired by those photos.  At its heart, comparison behavior has employees engage in distinction bias. They compare their lives to their friends on a minute, fixed detail. That ability to focus on something small, say traveling in retirement or location of trip, blinds the employee to all the other variables involved with the trip (or decision). Comparison mode also leaves out the details of a lived experience.

If you think back to the idea of keeping up with the neighbors, an employee might see where the neighbors, who for this example are the Jones, go on vacations. In looking at that one area of the Jones’s spending, it’s normal to compare that spending behavior to your own, or your own ability. By over comparing, the employee can lose their own plan, tailored to their needs. And the key to a great retirement readiness plan is that it’s a lived plan that moves and breathes with the employee. It allows for vacations, for colleges, weddings and other key areas.

How can plan sponsors keep their employees on the readiness track, instead of going into the spin cycle of comparison? Some experts suggest helping employees see the entire savings story that goes into a great Facebook post about a retirement trip or a certain amount of savings. Some suggest education seminars on telling the backstory. Those seminars can use a story they create and fictitious post, and break down the savings. By focusing on savings, not on spending, employees can be encouraged to continue to plan and save appropriately.

Another education angle may be to encourage employees not to compare their retirement choices to others side by side. If employees can think of their retirement plan as a broad, wide ranging idea, which encompasses not just saving for retirement, but career choices, children’s college choices and budgets, they can trick their brains out of the comparison mode.  Just like comparing one house to another isn’t always the best way to buy a home, so too can employees understand that comparing their retirement options to others side by side is a winning strategy.

The key to dismantling comparison behavior may also lie in how well employees know their “non-negotiables.” It’s easy to get swept away by someone’s gorgeous photos or shiny new car and forget about stocking away extra money into an HSA to ensure that a sufficient amount of resources are available given a family history of Alzheimer’s. Having employees write down, and keep somewhere relatively accessible, their key motivators for retirement planning can help unlock the hold that comparison behavior can have. Plan sponsors can encourage making a list like that by posting a blank template to a Sharepoint site or other shared folder or intranet.  They can also send a reminder email at the end of the year or a midpoint like the Fourth of July.

The worst comparison behavior is to literally invest like your neighbor. Looking for funds with high results and changing or selling assets too frequently can have a negative long-term impact on retirement accounts. The motive to invest like your neighbor can be a good one – adding extra funds to the retirement account to ensure your children won’t have to spend money on your care – but the results of hopping from strategy to strategy far outweigh the results of that behavior. Instead, encourage employees to rebalance their accounts.

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