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ONE OF MY FAVORITE books is The Paradox of Choice by Barry Schwartz. Its subtitle is Why More Is Less: How the Culture of Abundance Robs Us of Satisfaction. The principles that the book discusses have important implications for how we manage our money.
Schwartz distinguishes between “maximizers” and “satisficers.” A maximizer is someone who needs to be assured that he or she is making the best decision possible. By contrast, a satisficer can feel settled with a decision that’s good enough, and doesn’t spend time worrying whether a better alternative might have been missed.
I imagine everyone lives on a spectrum somewhere between pure maximizer and pure satisficer. By temperament, I tend to be a maximizer. Still, I’ve been working on becoming more of a satisficer.
What are the downsides of being a maximizer? Maximizers enjoy positive events less than satisficers and don’t handle it as well when negative things occur. When something bad—like a financial setback—happens to maximizers, their sense of well-being takes longer to recover. Maximizers ruminate more than satisficers. They experience more feelings of regret. In general, maximizers tend to be less happy than satisficers.
I think those of us who take in a lot of financial information can find ourselves nudged toward the maximizer end of the spectrum. How often have you read a financial article and afterwards had an uneasy feeling that maybe you don’t have the optimal mix of stocks and bonds, or that you lack the appropriate exposure to international markets, or that you have too much cash in your portfolio?
There are many areas of my financial life where it isn’t clear that I’ve made the best decision—if maximizing wealth is the ultimate goal. Indeed, some choices I’ve made have clearly reduced my net worth. To be a good satisficer, I need to feel comfortable with these decisions. Here are some examples of financial decisions I’ve made that have resulted in wealth not being maximized:
Pension choices. In the middle of my career, I had to decide whether to stay with my traditional pension or move to a cash balance plan. Using the best information available to me at the time, I selected the cash balance option. Years after I locked in my decision, changes were made to the cash balance formula that made it less lucrative. I had no way of knowing that would happen when I made my initial choice.
When I retired last year, I had the option of taking a cash lump sum or receiving a monthly payment for life. Again, I made what appeared to be the best choice at the time: I took the monthly payments with a 100% survivor option. The amount of the monthly payment is clearly less than what I would have received had I stayed with the traditional pension formula initially.
Whether the monthly payment option was the right choice for my cash balance pension remains to be seen. If my wife and I both die younger than expected, it would have been better—in hindsight—to have taken the lump sum. Being dead, we wouldn’t care, but our heirs might.
Retirement savings. I’ve discussed before that I didn’t contribute much to my 401(k) early in my career and that I didn’t invest aggressively. I certainly didn’t maximize my 401(k) account’s growth potential. Still, the percentage of my financial wealth in tax-deferred savings is uncomfortably high. The tax implications of managing that account are thorny enough already. Had I maximized my 401(k) over my entire career, Uncle Sam might have ended up being a major beneficiary of my frugality.
Charitable giving. I’ve shared previously how charitable giving is a priority for my wife and me. In fact, we’ve given away more money over the years than I contributed to my 401(k). Had maximizing wealth been our objective, this would’ve been quite counterproductive.
But here’s the thing: For us, our ultimate goal is to be good stewards of the wealth entrusted to us, not necessarily to maximize it. Money has deep spiritual implications for our lives. We follow someone who said you cannot serve both God and money. Giving money away is the best way we’ve found to avoid serving it.
Social Security. The decision of when to start receiving Social Security benefits still lies ahead for my wife and me. There are varying philosophies regarding when you should begin. The conventional advice is for the family’s main breadwinner to defer taking Social Security until age 70 if possible.
Still, when I input our specific information into an online calculator, the recommended commencement age for me was computed to be just under age 63. I’m sure we won’t make the optimal decision, whatever that might be for us. Still, I don’t plan on agonizing over it or feeling regret. Without foreknowledge of one’s date of death, it’s impossible to know whether you’re making the “best” choice.
I’m satisfied with our retirement savings. I don’t want to feel compelled to maximize the balance. Given that my wife and I appear to be on track for a financially successful retirement, gratitude seems more appropriate than rumination and regret.
Ken Cutler lives in Lancaster, Pennsylvania, and has worked as an electrical engineer in the nuclear power industry for more than 38 years. There, he has become an informal financial advisor for many of his coworkers. Ken is involved in his church, enjoys traveling and hiking with his wife Lisa, is a shortwave radio hobbyist, and has a soft spot for cats and dogs. Follow Ken on X @Nuke_Ken and check out his earlier articles.
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I once worked for a friend who strove for the most perfect solution. His work was beautiful, but scarce. I was always inclined toward the A-, pretty good but not perfected. Perhaps that’s the grade I’ll get at the end of life?
It turns out of course, that no one else remembers my grades and what matters to me is far more what I have actually put to use.
So I guess that makes me more of a satisficer. I guess that’s just okay ;-).
Maximizing wealth has never been a goal for me or my husband, either. I do wonder sometimes if I’m being negligent or irresponsible at the other extreme, though. If I don’t care (or don’t care enough) about “maximizing,” am I perhaps wasting opportunities to build wealth that could help charities I support or my family?
Overthinking things clearly has its drawbacks, but I also wonder about underthinking them.
I’m only concerned with having enough, which we do!
I know many of each type, and truly the maximizers are the less happy lot. In many cases, their regret revolves around their “wrong” decision about when to start their social security benefits. I did the math under various scenarios including death assumptions, and found that for me the difference between FRA benefits and trying to wring the last penny out of the SS trust fund amounted to a few thousand dollars over the course of many years, no matter how long I lived. Who cares?! I am a satisficer.
Your terms “maximizers” and “satisficers” remind me of my last job. I worked in engineering design optimization. Some designs are based on a search for the absolutely best parameters to create a globally supreme solution for ones design space of interest. This would be your “maximizer” solution, and usually is very costly (manpower, computational resources, etc) to determine and time consuming. The alternative is to work to improve the design by modifying design parameters and be willing to accept that an improvement is found while knowing the the globally best solution is still out there in your design space. This type of analysis is generally less costly and takes less time – and aligns with your “satisficers”. Thanks for the reminder of a very pleasant period in my career.
“…gratitude seems more appropriate than rumination and regret.”
Absolutely! A prudent person makes decisions based on the best available information. Avoiding “analysis paralysis” is important to financial success. And a sense of Gratitude is always the right choice.
I took two small retirements from former employers and invested them into a roll over IRA. Since 2013, the IRA grew significantly, and in 2021, I converted it into a Roth. Subsequently, I used those dollars to buy FIAs with income riders, which will pay a greater benefit to my wife and I for life, than the retirements with 100% survivorship would have, since the retirements had no colas and would bento have grown over time.
Was it the best choice? Who knows, but it was the choice I made with the information I had at the time, and I am comfortable with my choices.
Hopefully, you will find at retirement, you made the right choices too.
“Man plans, God laughs”.
Thank you for sharing your thoughts. It’s well written!
A disproportionate portion of my financial wealth is in tax deferred accounts as well. I never imagined it as as Uncle Sam adding himself on as a primary beneficiary of my frugality up until I read your article 🙂
It is impossible to be grateful and unhappy at the same time. Matthew Kelly
Nice article!
The concept of satisficing was first coined by Herbert Simon in conjunction with his notition of bounded rationality. Simon was the first non-economist to win the Nobel in Economics and his work provided a foundation for behavioral economics that Kahneman & Tversky and others developed.
While Schwartz emphasizes the positive aspects of satisficing, it has also been described as the tendency of decision-makers to settle for the first “good enough” solution to a problem instead of taking the time to find a more optimal course of action.
Coulda, shoulda, woulda – three words to ignore. Do a little basic research, make a decision and never look back. Anything else will drive us nuts.
When it comes to retirement and money it is all too complicated, to over analyzed and much of the advice is based on assumptions which may or may not prove accurate.
Even the federal government tries to predict spending no further than 10 years at a time and yet people rely on software to predict their financial lives for 30 years or more. Good luck.
Nicely written article, Ken. It provides a lot to contemplate for all of us. I think your premise – “if maximizing wealth is the ultimate goal”, is important for all of us to consider. I tend to want to optimize, but I recognize that in retirement it’s not always obvious what to optimize, and it’s definitely a personal decision. I like the way you frame four key decisions in light of this question. And you are right on point in emphasizing that you can only make decisions in light of the information available at the time. Good luck in future decisions.
My family recently discussed the topic of “third world problems,” and how it’s easy to get caught up in an attitude of dissatisfaction in the midst of abundant blessings. I like your last statement, and encourage us both to stay focused on it.
Visiting “third world” countries these days is incredibly inspiring!
The optimism you feel there is truly contagious. Over the past decade, hundreds of millions of people have risen out of poverty, and their resilience and hope are truly uplifting. It serves as a wonderful reminder that positive change is possible, even in challenging circumstances.
It’s a refreshing contrast to the sometimes dour mood we experience at home these days, reminding us of the strength and spirit of people around the world.
Make that “first world “.😀