It is said that one’s perception is his reality, but that isn’t always so. While it’s true sometimes, in other instances there is an absolute reality, regardless of perception. I’m talking the real world here, not existentialism. When we agree that twelve inches equals a foot, that is reality as I am referring to it.
An example of absolute reality comes from the movie Annie Hall. In a split-screen scene, Alvy (Woody Allen) and Annie (Diane Keaton) are talking to their therapist about how often they have sex. Alvy: Hardly ever. Maybe three times a week. Annie: Constantly. I’d say three times a week. So even though they each have a different perception of what three times a week represents, the reality is three times week. Their perception doesn’t change the reality.
Compare that to buying a car. There are those that think nothing of buying a car that costs 50% of their annual salary (isn’t credit wonderful?) and those that shudder at the thought of spending 25% of their salary on a car. In this case, their perception is their reality.
I bring this up because it is similar to determining how much life insurance to carry. Some individuals believe that $1 million is more than enough while others in the exact same financial position feel uncomfortable with only $2 million.
Since there is no absolute “correct” amount of life insurance to carry, this sounds like their perception is their reality, but really it’s more of a hybrid. Yes, to some extent their perception is their reality, but there is also the reality that, similarly invested, $2 million will produce about twice the income that a million would.
The reason that $1 million (or $2 million) sounds like a lot is that in most cases, the individual doesn’t have that much in his investment account. The reality is, how much would it take for you to never work again? That’s probably close to the amount of life insurance and investable assets that you need, because that is exactly what you are asking your survivors to do.
So is it pompous, presumptuous, and preposterous of me to disagree with Einstein, who said “Reality is merely an illusion, albeit a very persistent one.” I don’t think so, because while I understand the perception concept, I also contend that there is an element (or elements) of reality to our lives. Maybe not as much as we think, but it is there. And it’s important to know the difference.