References to financial instruments are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Investing in any security involves risk, including loss of principal. No strategy assures success or protects against loss, nor is past performance a guarantee of future results.

References to specific websites are for informational purposes only and do not represent an endorsement of the source company, its products or services.

The Center for Behavioral Finance is sponsored by Allianz Global Investors U.S. LLC and Allianz Global Investors Distributors LLC.

PORTFOLIO / PENGUIN

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First published by Portfolio / Penguin, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC, 2015

Copyright © 2015 by Allianz Global Investors U.S. Holdings, LLC

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ACKNOWLEDGMENTS

Writing books is typically something of a collective effort, with the author benefiting from helpful input and suggestions from many people. This one is no exception.

First, I should like to acknowledge the help of a wonderful group of academic advisers, which includes Richard Thaler, Daniel Goldstein, Peter Ayton, and, especially, John Payne, who can always be relied upon to see right to the nub of any tangled issue.

Dozens of financial advisers, and a smaller number of individuals on the point of retirement, provided invaluable insights based on their experience of the challenge of planning for retirement.

This book was developed by the Allianz Global Investors Center for Behavioral Finance and its skillful and enthusiastic team as part of a broader project focused on helping people make the most of their retirement years. Thank you Steve Shu, Kim Andranovich, Caitlin Ledwith, Namika Sagara, and, most of all, Cathy Smith, director of the Center. And thanks, too, to Brian Gaffney for his ongoing vital encouragement and support.

Last, but not least, it is my joy to thank my wife, Lesli, and Maya, our now-not-so-little girl, for their love and supportive presence through this intense book-writing process.

Title Page

Copyright

Acknowledgments

Introduction

STEP 1

Identify Your Goals

STEP 2

Discover Blind Spots

STEP 3

Prioritize Your Goals

STEPS 1–3 IN ACTION

STEP 4

Think Beyond One Future

STEP 5

Recognize the Limits of Forecasting

STEP 6

Consider the Perspectives of Others

STEP 7

Reprioritize Goals

STEPS 4–7 IN ACTION

Other Applications of the GPS Process

Summary

Afterword: Beyond Setting Goals

Appendix

Introduction

I am a behavioral economist with a bad back. (Don’t worry: This book is not about chronic back problems.) The problem with having a bad back is obvious: pain. The solution, however, is far less obvious. Fixing a bad back requires experimentation and the patience to figure out what helps relieve the pain and what doesn’t. Your doctors have to balance multiple competing goals: how to seek a reduction in pain with the fewest possible side effects at the lowest possible cost, not to mention the fact that medical treatments require personalization, because what works for me might not work for you and vice versa. Finally, a successful solution will most likely involve multiple treatments. Maybe you’ll need surgery followed by physical therapy, or medication and a new pair of shoes. It is often not the individual treatments that make the difference but rather the portfolio of treatments, including how to orchestrate their timing.