Wednesday, June 27, 2007

Retirement Planning and Misconceptions

Retirement Planning and Misconceptions

Misconceptions live quietly on the dark side of retirement planning. These are understandable and largely forgivable human traits that are often quite innocent in their origins.

Given two pieces of information, we can often form child-like combinations, jumbling facts in a process that resembles sound thinking. In part two of the book I am writing, I discuss the idea that homes are not investments. Many of us make this mistake. And because we do, this is probably the largest preconceived notion we make about retirement planning.

This kind of conceptual misunderstanding often leads us to make unfounded assumptions about our wealth and more importantly, our plan. And because of that, it hinders our ability to make good long-term decisions.

The greatest problem facing someone who harbors many of these kinds of beliefs, of which I mention seven that can have a detrimental effect on your retirement, is the fact they tend to become a sort of gospel filled with what we believe to be undeniable truths.

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Bill Beaty at the American Institute of Physics has complied a list of common scientific misconceptions that plague good understanding of our world around us. When it comes to retirement planning, the list is much shorter but with more disastrous results if not corrected in time.

But how did we get to the point where we follow what we think we know and argue so vehemently against the truth? Perhaps it was a simple as following the person who traveled the road before we did.

I am reminded of a poem by Sam Walter Foss (1858-1911) titled the Calf-Path. Mr. Foss it should be noted, was a librarian and a poet from rural New Hampshire. The poem below is not his most famous but does tend to illustrate that idea that once we are given an idea, in this case a path, we tend to take it unwittingly even if it is not the shortest distance to the place we seek.

    The Calf-Path
    One day, through the primeval wood,

    A calf walked home, as good calves should;

    But made a trail all bent askew,

    A crooked trail, as all calves do.

    Since then three hundred years have fled,

    And, I infer, the calf is dead.

    But still he left behind his trail,

    And thereby hangs my moral tale.

    The trail was taken up next day

    By a lone dog that passed that way;

    And then a wise bellwether sheep

    Pursued the trail o'er vale and steep,

    And drew the flock behind him, too,

    As good bellwethers always do.

    And from that day, o'er hill and glade,

    Through those old woods a path was made,

    And many men wound in and out,

    And dodged and turned and bent about,

    And uttered words of righteous wrath

    Because 'twas such a crooked path;

    But still they followed - do not laugh -

    The first migrations of that calf,

    And through this winding wood-way stalked

    Because he wobbled when he walked.

    This forest path became a lane,

    That bent, and turned, and turned again.

    This crooked lane became a road,

    Where many a poor horse with his load

    Toiled on beneath the burning sun,

    And traveled some three miles in one.

    And thus a century and a half

    They trod the footsteps of that calf.

    The years passed on in swiftness fleet.

    The road became a village street,

    And this, before men were aware,

    A city's crowded thoroughfare,

    And soon the central street was this

    Of a renowned metropolis;

    And men two centuries and a half

    Trod in the footsteps of that calf.

    Each day a hundred thousand rout

    Followed that zigzag calf about,

    And o'er his crooked journey went

    The traffic of a continent.

    A hundred thousand men were led

    By one calf near three centuries dead.

    They follow still his crooked way,

    And lose one hundred years a day,

    For thus such reverence is lent

    To well-established precedent.

    A moral lesson this might teach

    Were I ordained and called to preach;

    For men are prone to go it blind

    Along the calf-paths of the mind,

    And work away from sun to sun

    To do what other men have done.

    They follow in the beaten track,

    And out and in, and forth and back,

    And still their devious course pursue,

    To keep the path that others do.

    They keep the path a sacred groove,

    Along which all their lives they move;

    But how the wise old wood-gods laugh,

    Who saw the first primeval calf!

    Ah, many things this tale might teach -

    But I am not ordained to preach.