How to Defeat Your Retirement Nemesis
In Greek mythology, there is no goddess more remorseless than Nemesis.
And for good reason.
Nemesis is the goddess of revenge. She delights in punishing those with hubris. She is the ultimate arbiter of justice.
And she always wins.
Today we're going to talk about your nemesis. I'm not talking about your boss, your business competition or the obnoxious jerk who compulsively cheats on the golf course.
I'm talking about your true nemesis. The one with the ability to ruin your life.
It's a strong opponent. Fighting it requires constant vigilance. But you don't have to look far to find it.
Because it's right between your ears.
The psychology of saving
When it comes to retirement, we are often our own worst enemy. We delay. We rationalize. We make promises to ourselves we can't keep. We fail to delay gratification.
We also fall prey to magical thinking. We think that if we wish for something to occur, it may materialize. Something will bail us out.
It's all a recipe for disaster.
So let's talk about the psychology of retirement planning. You can have total mastery over the nuts and bolts of the subject, yet still fail miserably -- if you don't know yourself.
The first thing to understand: our brains are working against us. We are hardwired to seek immediate gratification. We have to outfox our own biochemistry by bypassing our brain's pleasure centers.
In essence, we have to train our brain.
Anyone who has ever been to a shopping mall can attest to the little thrill that comes with making a purchase. Anyone who has ever broken a diet to eat Kobe beef can tell you all about the overpowering attraction of the here and now.
Here's a prime example of how our brain serves as our financial nemesis.
When we make a purchase, it usually is much less "painful" to pay with a credit card, rather than cash. It seems easier, because the hit is delayed.
In reality, it costs us more. It should be more painful. But it's not. We have to rely on perspective and logic to override our brain's initial reaction.
If kids can do it, so can you
Let me tell you a fascinating story about gratification. In the late 1960s two professors at Stanford ran a study called The Marshmallow Test.
The setup was simple. A child was offered a marshmallow by a tester. The child was then told he or she could have two marshmallows if they waited 15 minutes to eat. The tester then left the room.
A majority of the hundreds of children who were tested tried to wait for the second marshmallow. But only about one-third of them were successful.
Interesting, right? But here's the really intriguing part. The children who successfully waited 15 minutes for the second marshmallow had better life outcomes.
They did better on tests. They stayed more physically fit. They went further in school.
What's the lesson here? Retirement planning is all about waiting for the second marshmallow. If you can teach yourself to delay gratification, you'll be in far better position.
The thought of financing 30 years of retirement is enough to worry anyone. Even those of us in great financial shape aren't immune to medical costs and unexpected expenses.
But a stable and successful retirement is within almost everyone's grasp. It just requires hard work, smart planning -- and delayed gratification.
Clearing mental hurdles
"I don't have enough to save more."
That's one common excuse people make when it comes to retirement planning. But it's usually a psychological trap.
Almost all of us could save more. It often just means a shift in priorities.
That's not the real issue, however. Even if you only have enough extra cash to scrape up a cup of coffee every morning, save it anyway. It really doesn't matter how much you're saving.
It's the act that counts. Saving is a self-reinforcing cycle. Even if the money is trivial, it is learned behavior.
Once you start burning those new patterns into your brain, holding out for that second marshmallow becomes infinitely easier.
And your odds of having a successful and stable retirement will go through the roof.