Mind Tricks & Common Illusions

Magician performs magic with beauty girls in airMagicians and con-men have known for centuries how to deceive, seduce, and exploit audiences and individuals to their benefit. Francis Bacon, 16th century philosopher, scientist, and author, said, “Man prefers to believe what he prefers to be true.” We are willing victims, even active accomplices, in the regular misinterpretation of the world around us, often to our dismay and sometimes to our harm.
 
In fact, neuroscientists are just beginning to unravel the secrets of the brain – how we see the world, and how we remember details of events and environments. This can help us understand the hidden feelings that color our decisions and drive our actions, which in turn can help us make better decisions.

Decision Systems in Our Brains

The human brain is a magnificent organ, developed over hundreds of millions of years of evolution. It equals about 2% of your body weight but consumes more than 20% of your oxygen and blood flow. Research suggests that the brain functions through the more than 1,000 trillion synapses between brain cells (neurons) that are constantly growing and dying throughout life.
 
As explained in The New York Times, Dr. Daniel Kahneman, a Nobel Prize winner and author of “Thinking, Fast and Slow,” theorizes that our brains operate on two different levels or systems which he calls “Experiencing Self,” or System 1, and “Remembering Self,” or System 2. The first system operates primarily on a subconscious level: It is fast, automatic, emotional, frequently in play, and relies mostly on stereotypes. The second system is deliberate, logical, slow, infrequent, and lazy – coming into play only with effort. System 1 jumps to conclusions, while System 2 forms judgments. System 2 likes novelty, significance, and endings (the last moments of an experience).
 
Kahneman theorizes that we rely on System 1 – what writer Malcolm Gladwell in his book “Blink” calls “intuition” – for most decisions, exercising System 2 only with conscious effort and when we are aware that System 1 might be faulty. These basic cognitive processes are necessary to accurately perceive and understand the world around us. However, the tendency to over-rely on intuition – stereotypes, impressions, and distorted, even false memories – frequently leads to bad conclusions, inappropriate acts, and later regrets.
 
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Shedding Excess Baggage and Downsizing Before Retirement

Senior coupleThis article first appeared on Forbes.com on February 19, 2014.

If a person’s lifetime was equated to the four seasons of a year, the time following retirement would be the equivalent of autumn. It’s when nature slows down, takes a breath, and appreciates the accomplishments of spring and summer. People generally reach this season in their 60s and 70s, some with trepidation preparing for their remaining years. Many mourn the passage of youth and resent the next generation taking their place in the sun while others, like the poet W.B. Yeats did, choose to “take up life in both hands and care more for the fruit than the flower” in the years following retirement.

Retirement means, for the first time in decades, you have the luxury of worrying only about yourself and possibly your spouse. A new life beckons, pregnant with opportunities and challenges. Unlike your youth, you’ve gained experience and wisdom as well as the confidence that comes from having survived the obstacles and setbacks of starting a family, raising children, and building and maintaining a career. You are free and now face a whole new life full of adventures just waiting to happen.

The End of Accumulation

Youth and middle age are spent chasing dreams, accepting responsibilities, and amassing assets – psychological and physical. If you’ve been diligent and lucky, you’ve accumulated financial wealth in the form of an IRA, 401k, stocks, bonds, and savings. Your employer might have provided additional assets in the form of company stock, a pension, or a profit-sharing account. You may own tangible assets like real estate, art, and collectibles and you’ve also acquired automobiles, furniture, tools, gadgets, heirlooms, and knick-knacks over your lifetime – most of which are rarely used or even remembered.

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5 Tips to Prepare for a Comfortable Retirement

comfortable retirementAccording to a 2013 Gallup Poll, more than half of working Americans expect to retire by age 65 or earlier. However, this expectation stands in stark contrast to their practical readiness for retirement.

The 2013 Retirement Confidence Survey, performed by the Employee Benefit Research Institute and Matthew Greenwald & Associates, delivers the following unsettling statistics:

  • In 2013, three of four Americans had total savings of less than $25,000, and an astounding 28% had less than $1,000.
  • Less than half of Americans have any idea how much money they will need during retirement or how much they have to save in order to reach that amount.
  • Almost two-thirds of all workers feel they need more than $250,000 in savings, 40% estimating they need at least $500,000.
  • Six of ten workers contribute to a retirement savings plan through work, but the average is skewed heavily in favor of those who earn $75,000 or more annually – 94% of those who earn $75,000 or more versus 24% of those with incomes lower than $35,000.

Only one in four of workers feel very confident that they will have enough money to take care of basic expenses, not including healthcare, during retirement – and only 14% think they will have enough money for healthcare.

Despite the probability that many Americans will have to rely on Social Security and Medicare for the bulk of their retirement and healthcare expenses, a FindLaw.com survey reveals that 30% of workers lack faith that these programs will be viable when they retire. Many economists analyzing the existing demographic and savings data project that tomorrow’s retirees need to save more, work longer, and get by with less than today’s retirees do. If that potential fate discourages you, implement the following tips as soon as possible to improve your likelihood of enjoying a comfortable retirement.

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5 Shrewd Ways to Adjust Your Portfolio As You Near Retirement

adjust portfolioLife was good at the end of 2007 for Bill and Mary. Bill, at age 60, had enjoyed a successful career with Walgreens, one of the largest retail companies in America. His career, begun 28 years previously, enabled Mary to be a stay-at-home mom, paid for their two kids’ college education, and enabled the couple to build a $1 million position in a Fidelity New Millenium Fund through constant investments over the years. During the last decade, Bill had been the beneficiary of annual stock options which he faithfully exercised, maintaining the common stock with the faith that the company would continue to grow in value. By 2007, the stock was worth more than $300,000. The couple was looking forward to Bill’s early retirement in 2010 and a year of traveling, making up all of the trips they had foregone during the early years of savings and paying for college. Then disaster struck.

With the Great Recession, the S&P 500 fell more than 800 points, a 55% decrease. While the New Millennium Fund did better than the general market average, losing only 48% of its value, the value of Bill and Mary’s portfolio dropped to slightly more than $500,000. The Walgreens stock also suffered, falling from $48 per share in September to $23 in 2009, and the options that Bill had yet to exercise were underwater. Their plans for an early retirement were no longer possible.

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this post first appeared on the FiveCentNickel website on December 27, 2013.