Navigating the pitfalls of retirement planning

MANY people wake up one morning and realise it's time to plan for retirement. Often, they are in their 40s or 50s. By then, much precious time has been wasted; cash could have been deployed to work in the financial markets much earlier.

One common human trait is the fear of loss. Confronted with falling asset prices, investors sometimes sell at the bottom of the market and never return. When prices then start to rise, inertia sets in until it is too late. Or sometimes, investors sell too early and miss out on longer-term gains. Not everybody has the discipline or the stomach to invest steadily through market cycles. Yet that is the best way to build up a nest egg.

Hence, to ensure people are on their way to financial security, some compulsion is necessary. This can be an automatic deduction into an insurer's savings plan or a government or private sector pension fund. Planning for retirement is one instance where human beings have to subscribe to a system that works for them in spite of themselves.