The Investment Scientist

Can You Retire?

Posted on: February 27, 2012

Financially Secure Retirement

According to Shlomo Benartzi, a University of Chicago economic professor, 50% of Americans don’t save for retirement. Of the other 50% who do save, only 11% save enough, according to their own estimates, which are probably optimistic.

This is not surprising to this financial advisor. For nearly all of my clients, I have created a savings and investment plan for them. The plan is designed so that they can live the lifestyle they desire in retirement. They are all committed to the plan. But while the commitment is there, the will power is not. When it comes time to implement the plan, they can always find important spending that justifies putting off saving to another day.

My clients are all very educated and highly intelligent. Why do even they have a hard time saving enough for a secure retirement? It all boils down to two words: instant gratification.

Instant gratification is a powerful human instinct. It originated from the lower reptilian brain, and it’s a robust mental feature that was developed through millions of years of human existence.

Let’s go back to the time of our pre-historical ancestors. They have just killed an animal. Now they have a choice: they could eat the animal or keep it for the future? Those who eat it now are more likely to survive to the next meal. Those who keep it for the future are likely to starve; they may not survive to find that the animal is rotten and no longer edible. Their genes will be removed from the human gene pool. In other words, we are all descendents of ancient instant gratifiers. We carry their genes.

Fast forward to modern times: now we live into our 70s, 80s, if not 90s. Planning for the future (aka delayed gratification) becomes a necessity. But alas, we still carry the “knowledge” of our ancestors that delayed gratification could be deadly. It takes our thinking brain to override the influence of our ancestors and strong will power to go against our ancient instinct.

How do we do that? Here are two steps:

1. Go through a rigorous financial planning process with a qualified financial advisor. The planning process serves as a commitment device. The more effort you put into the process, the more likely you will stick to the plan.

2. Make saving a default by setting up automatic investment. For instance, if the plan calls for saving $5,000 per month, set up an automatic investment plan with your brokerage so that $5,000 will be taken out of your bank account and invested automatically without you even thinking about it.

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3 Responses to "Can You Retire?"

In my observation, even savers change when entering retirement. It seems about a month after sleeping in and enjoying relaxed mornings the realization creaps in there is no more regular paycheck.

People who have been social and economic climbers their entire working life, often stop climbing. Intead of a new car every 2 or 3 years, the buy a retirement car. The change what and where they purchase clothing and other items.

I observed this and thought, gee I’d like to continue living as I always have. If I need to drive to the Carolina’s or Phoenix, I’d like to have a reliable ride regardless of my work status. Ane new electronincs when needed.

These parameters are much different than hunkering down and living on “fixed income”.

The fear is basic; people don’t want to outline their money.

Machael and I have had many email discussions regarding stocks, mutual funds, real estate, and other investment vehicles.

What works the best is an all of the above approach. Then when rebalancing between investments, you are always buying something on sale. It’s the after life of “dollar cost averaging”.

When we’re working and saving in a planned methodical way, we invest the same amount each month. As the markets move up and down our purchases are multiplied by the times the prices are down.

After retirement, something needs to take the place of dollar cost averaging. Setting still doesn’t utilized the dynamics of the market.

Rebalancing can. by taking the profit from one investment (an exit strategy) and purchasing something that is down at the present time. A few months later, you do it again.

It seems contrary to sell your winners. People understand buy and hold much easier. What really is happening is you are selling some of the winners to capture profit, and buying future winners, so you can capture more profit when they move upward.


I like how you frame it. You sell winners to capture profit, then buy future winners so you can capture more profits.

By the way, I bought anther investment condo, 2 bedroom/2 bath for $88,500 that could rent for $1400 per month here in the suburb of DC.

The other property I bought last last year has been rented out for $1750 per month.


[…] This unconscious assumption of a different self in the future is demonstrated graphically by brain scans. In their study, Ersner-Hershfield et al. found that when people think about their future selves, the same brain region lights up as when they think about strangers. The implication for saving behavior? Saving for the future instinctively feels like giving money away to a stranger. No wonder only 9% of Americans are saving enough for their retirement. […]

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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