Mentor Path

David Krueger MD

To abstain from the enjoyment, which is in our power, or to seek distant rather than immediate results, are among the most painful exertions of the human will.
N. W. Senior, 1836

Setting goals is easy. The challenge is to sustain the discipline to realize them. Resisting temptation is hard.

The other reason it’s difficult is the unequal battle between your present self and your future self. Your present self is real and in control. Your future self is an abstraction without its own power.

Your present self wants pleasure and to spend now. The pleasure center in your brain opts for a little of something now rather than a lot in the future. Your future self needs planning and savings.

For every three baby boomers, the McKenzie Global Institute predicts that two will not be able to meet their pre-retirement financial needs while they are in retirement.

Commitment devices level the playing field between our present and future selves. A commitment device needs to be structured so that you can’t wiggle your way out of it, or bargain with yourself. We’ve helped our children learn of commitment devices when we gave them a piggy bank.

Rather than have a commitment device as a reminder that you have no self control without it, it can be reframed as a way to make a good decision once. A simple example is a decision to automatically transfer money from your checking account to your retirement account once a month.

Other vivid examples of commitment device outcomes:

Investing $1.50 per day beginning at age 20, based on the stock market average growth since 1926, by age 65 will be worth $1 million. (Wait until age 21 instead of 20: the difference is $109,000).

Investing $2,000 per year in an IRA beginning at age 18, then stopping all investment by age 30, by age 65 will be worth $1 million.

We may also neglect our future selves because we don’t – or can’t – imagine what it would be like to be old.

Dr. Daniel Goldstein, a psychologist who studies decision making, uses computer simulation to help people imagine how they will look in the future. When people are shown their projected image at an older age, most significantly increase their retirement savings.

Our future money story depends on both imagining and planning.

Mentor Path

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