Retiring with Confidence

I’ve found that as I mature, I have really been trying to maximize my health, career, life experiences and especially my retirement savings. While I love what I do, I also want to be able to have a healthy, happy life after I retire. I read a startling statistic that women are 70% more likely to spend their retirement in poverty than men.1 This statistic has motivated me to write about the importance of financial awareness, especially in terms of retirement preparedness.

“Awareness is the state or ability to perceive, to feel, or to be conscious of events, objects, or sensory patterns…More broadly, it is the state or quality of being aware of something.”2

How can we become more aware of retirement savings? Take the first step by becoming more conscious of your future. It may seem like a long way off, but try preparing a budget for your future and setting clear rules for your finances now. For example, if you want to travel, own a Corvette or golf everyday when you retire, create a budget for it, but expect the unexpected and plan for emergencies. If you are unsure of where to start, a financial advisor can help.

After you’ve identified how much you need for your retirement, the next step is to save for it.

How much should you be putting aside for retirement?

How much you set aside depends on your personal circumstances (e.g. time horizon, financial obligations, required annual retirement income, etc.), but aiming for 12-15% of your annual pay (in addition to any employer 401(k) matching) may be a good place to start.

“Many experts say you’ll need roughly 70-80% of your current annual income to live comfortably in retirement.”3

Keep in mind this doesn’t account for inflation, family or healthcare issues or possible emergencies.

Saving for retirement can force you to face a really tough choice: save as much money as possible today and await your “retirement reward,” or give in to the urge to spend now and possibly end up sacrificing retiring with financial security.

How can we incorporate patience and discipline into our retirement savings plan, especially in a world compelling us to succumb to our spending urges? An interesting study was performed in the 1960s at Stanford University by psychology researcher, Walter Mischel to test the benefits of delayed gratification. The study tested the willpower of a group of four-year-olds. Each child was given the choice to eat 1 marshmallow immediately or wait 15-20 minutes to get 2 marshmallows.

Can you guess how many kids were able to wait and receive the reward of a second marshmallow?

Only 30% of the children were able to wait for their reward.4

According to the Stanford study all of the kids wanted the marshmallow, so how were 30% of them able to resist eating it immediately? The children who were able to wait didn’t totally remove the desire to consume the treat, but instead found ways to distract themselves from the temptation.

What does a marshmallow really have to do with financial success anyway?

According to Mischel, the subjects that were able to wait for the greater reward of 2 marshmallows were more able to overcome adversity and had the persistence to tackle their goals as adults, which he claimed correlated with having higher salaries and being more satisfied professionally.

The marshmallow study is an example of the benefits of discipline – an important aspect of investing for retirement. Even as an adult, you may still find resisting sugary treats to be a challenge. However, trying to save and not spend money can be even tougher!

It’s been decades since the Mischel-marshmallow study took place, but the study’s findings are still interesting and relevant today. Having the discipline to regularly save and invest can lead to greater financial security during retirement.

So we all have a choice, do we spend our earnings (eat that marshmallow now) or do we delay gratification (save and invest for retirement) and reap the rewards of compounding marshmallows, ahem, returns?

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
OneBite Editorial Staff
OneBite Editorial Staff

OneBite® is a Top 50 Financial Advisor Blog powered by Hewins Financial Advisors. Founded in 2011, the digital magazine is dedicated to providing intelligent, in-depth coverage and analysis of the top financial and economic issues facing investors today.

1 Comment

Comments are closed

Retiring with Confidence

time to read: 3 min