Planning Fallacy

Planning fallacy is the tendency to be overoptimistic in planning how much time it will take to accomplish a task. Planning fallacy explains why most people overrate their own abilities.

Consider a few real-life examples:

The Sydney Opera House was expected to be completed in 1963. A scaled-down version opened in 1973, a decade later. The original cost was estimated at $7 million, but its delayed completion led to a cost of $102 million.1
The Denver International Airport opened 16 months later than scheduled with a total cost of $4.8 billion, more than $2 billion more than expected.2

Applying this to an investing example, we see a gap between when today's workers expect to retire and when they often actually retire. At best, workers have correctly predicted when they'd retire about half the time. This can be problematic for those who may leave the workforce earlier than planned due to a hardship such as a health issue or disability, if they don't have enough to pay for basic expenses. The consequences of not planning well for retirement can be severe.3

Working with a financial advisor can help combat planning fallacy.

Investors often believe that “things will work out” or that they will have enough money to meet their goals. But as this quote from Ben Franklin reminds us—“if you fail to plan, you are planning to fail”—this type of overly optimistic thinking with finances can get investors into trouble.

Working with a rational, professional financial advisor can help investors to plan realistic timelines for meeting their goals, and overcome planning fallacy.  A financial advisor will work with you to not only help define your goals, but put an investment process into place designed to help you meet those goals within a defined period of time.