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Visualizing your retirement savings not as dollars, but as tokens – like those used as the medium of exchange in amusement parks – will help retirees overcome the pernicious bias of myopic loss aversion.

Chuck E. Cheese is a kid’s dreamland, allowing for the instant gratification from tickets, lights and sounds. What do kids have to give up for the simple pleasure of playing pop-a-shot and video games? Tokensi. Tokens are the medium of exchange (currency) for this instant gratification, without which kids are relegated to watching others experience the joys of play.

We work so that we can earn money, our medium of exchange, allowing us to purchase goods and services for our own gratification. Whatever extra money we have we save for future consumption. That savings can come in many forms – a savings account, CDs, stocks, bonds, etc. Those assets become our tokens that we exchange for a form of consumption in the future.

Say we live in a world where we are paid in dollars but need to purchase goods and services in tokens. Each week, I make $100, I need $60 worth of tokens to pay for my general living expenses, another $30 worth of tokens for leisure, leaving me with $10 in tokens to save for later. I ask the man behind the counter what options I have to invest these tokens to be consumed in retirement. He gives me the following three buckets to choose from, along with the possible range of returnsii:

Figure 1


Bucket A: 47% to (-39%) Bucket B: 43% to (-8%) Bucket C: 2% to 0%

He assures me that between now and retirement he will offer me liquidity by buying or selling me additional tokens whenever I want. However, each time the price of the token changes based on how his business is doing. When business is good, he may offer to buy/sell me tokens for more than $1; if business is bad, he may offer to buy/sell them for less than a $1.

Which bucket would you choose?