By: Laura Walton AFC®
Fair warning. I’ve been listening to Freakonomics podcasts. This morning, on my way to work, Steven Levitt, University of Chicago economist, and Stephen Dubner, New York Times journalist, talked with a guest about conducting pre-mortems – discussing what might go wrong before it does rather than what went wrong after the fact.
Levitt and Dubner wrote “Freakonomics: A Rogue Economist Explores the Hidden Side of Everything” in 2005. It became a best seller by virtue of connecting the usually dry field of economics with everyday behaviors. Knowing that much of our financial success depends on our behavior, I hoped that Freakonomics podcasts would spark ideas for blog topics and it did just that this morning.
We all know about post-mortems – after something fails, you study what went wrong. In financial terms, that might mean finding yourself at age 60- or 70- or 80-something without the means to live the lifestyle you’d imagined and looking back wishing you’d done some things differently along the way.
What, instead, if we conducted a financial pre-mortem in our 30’s, 40’s of even 50’s – if we took a peak around the corner to retirement to visualize what might be ahead. Companies have used this look-ahead concept to avoid failure of product and service launches. The pre-mortem, as defined in the podcast “Failure is Your Friend”, is a valuable exercise for several reasons:
- it forces you to define your goal (you can’t determine success or failure without a goal)
- it forces you to brainstorm what might happen to prevent you from reaching your goal
- it forces you to examine your current practices and their effect on your goal (spending, saving, investing, etc.)
- it’s a safe exercise, it’s a “what if”; failure is okay in a pre-mortem because it allows you to make a correction while you still have time
- last but not least, if you do this exercise with your financial partner, whoever that may be, it encourages teamwork and discourages blame, and it’s a positive forward-looking exercise rather than looking backwards with regret
We’re often over-confident about our future. Like Pollyanna, many of us think “everything will be okay”. And we don’t dare take the time to examine if, in fact, everything will be okay – what if Pollyanna is wrong? A pre-mortem gives you a safe place to test your Pollyanna.
So, I encourage you to sit back, close your eyes, and visualize what you’d like your retirement to look like and then let your creativity flow. Brainstorm about what might de-rail you and then take the steps needed to stay on track.