Retirement is an aspiration and a dream to "live the good life," but it is often perceived as an uncertain path filled with financial complexities.To fully prepare, it's crucial to understand both the financial and psychological aspects.

Financial Decision Making and Loss Aversion: Did you know that our financial decisions can be irrational?

Consider this dilemma:

Option A: Win $240,000 with certainty .

Option B: A lottery ticket with a 25% chance of winning $1 million and a 75% chance of winning nothing. Although the expected value of B is $250,000, most people choose the safe option of A..Now, another scenario:

Option C: A certain loss of $750,000 .

Option D: A lottery ticket with a 75% chance of losing $1 million and a 25% chance of losing nothing. Both have an identical expected value of -$750,000. Surprisingly, most people choose D, the riskier option for potential loss.

This behavior illustrates loss aversion , a phenomenon where we are more uncomfortable with losses than we are attracted to equivalent gains.

Choosing A and D is actually worse than choosing B and C, since B and C represent the same lottery plus an additional win of $10,000 with certaintyThis irrationality can lead to damaging decisions, such as withdrawing money from the stock market during a crisis, missing out on recovery opportunities.

The Challenge of Financial Preparation:

Many people are underprepared for retirement and lack basic financial awareness. Despite the ease of access to financial apps and gurus, most people are unable to detail their monthly expenses, making planning difficult. Lack of planning can result in a retirement life that is less than desired, forcing people to work out of necessity or to depend on their children.

For a comfortable retirement, it is vital to visualize that dream and then quantify it.

The Rule of 375: A Quick Look at Your Savings. A useful tool for estimating the capital needed for retirement is the Rule of 375.This rule calculates the "nest egg" you would need today to cover your monthly expenses during a 30-year retirement, considering an approximate 20% tax allocation.

• Calculation: Multiply your desired monthly retirement spending by 375.

• Example: If your goal is an income of $3,500 per month, you would need approximately $1,312,500 ($3,500 x 375).This figure is a "reality check" and a reminder of the importance of planning.

However, this is an estimate; for a detailed plan, including inflation, longevity, and market behavior, it is essential to plan ahead.