Behavioral finance is the study of why people make irrational financial decisions. A particular area of behavioral finance that I see frequently is “anchoring.” The concept of anchoring draws on the tendency to attach, or “anchor,” our thoughts to a reference point, even though it may have no logical relevance to the decision we are making.

A great example of this is choosing to retire at age 62 because you are eligible for Social Security benefits. Over the past four years, I have met with hundreds of people who were struggling with their retirement decision. Some of these people were not really prepared to retire. But because they had reached age 62, they already had decided to retire, regardless of how much debt they owed or how little they had saved. They were “anchored” on the decision to retire at 62.

Another example is pension eligibility. It is the same conversation, just with different options. Being eligible for retirement has nothing to do with whether you are ready to retire. Just as qualifying for a house or car loan doesn’t mean you can afford to buy a house or a car. Each financial decision you make should be based on what you can currently afford, as well as what the decision will do to your long-range financial plans.

What retirement age are you anchored on and why? Have you tracked your spending for 30 days to determine how much money you will need each month? Do you know what your income will be? What will happen to your situation if inflation averages 3.5 percent each year in retirement? Are you prepared for major expenses, such as home repairs or claims (deductibles) or health care expenses? Have you considered how much long-term care could cost and how you will pay for that? How much are you planning to spend from investment accounts, and is this amount sustainable for the long run?

A website that may help you with your planning is www.livingto100.com. On this site, there is a free quiz you can take that will estimate your longevity. The quiz asks you about your current health, health habits, and family history. I recently took the quiz, and it estimated that I could live to age 99. So, if I retired at age 62, that would mean I could be retired for 37 years. What would this mean for me, financially?

I went to the Bureau of Labor Statistics website and used their Consumer Price Index calculator, and here is what I found. Unfortunately, the calculator can only look backward, as we do not know what inflation will be like going forward, but here’s an example of what we’re dealing with. If I had an income of $1,500/month in 1975, and decided to retire on this income, by the year 2012 I would need an income of $6,387/month to have the same buying power.

I think it’s time we throw out the anchors, and set new goals based on where we are, what we can realistically accomplish and what we would like our futures to be like. Your decisions are yours alone to make, and once they are made you will have to live with them. Make sure they are the sort of decisions you can enjoy living with.

Sherri Goss is vice president of Rosenberg Financial Group Inc., with offices in Macon and Warner Robins. Contact her at 922-8100 or sherri@rfmoney.com.