Like the ant in the fable, should you hoard and invest as much money as you can now, depriving yourself of little luxuries and gambling that you’ll live to a grand old age? Or should you have a bit of fun, like the grasshopper, spend that cash and then end up in your 90s living on Ramen noodles?
Jim Miller’s article posted earlier on this blog— “How Much Should You Save?” — underlines the challenge everyone working without the backup of a pension faces.
A recent Bloomberg.com article suggests that more of us may be grasshoppers, but caving into immediate gratification may give our finances as much as a six-figure hit. The article notes that a “unique challenge for retirement planning is that the end goal is so far away that it’s hard to see how actions we take or don’t take today will have a huge impact on our older selves.”
Bloomberg further references a contract created by the Allianz Global Investors Center for Behavioral Finance. The contract, written to help financial advisers hold their clients to the investing course, includes this passage: “Should the portfolio value decline by 25 percent, we commit to avoid the urge to panic and sell the portfolio. Similarly, should the portfolio value increase by 25 percent, we commit to avoid the urge to chase the hottest investments.”
If you really want a look at how your savings will pile up if invested in a retirement plan, it’s worthwhile to play around with the 401(k) savings calculator at Bankrate.com. Then tinker with the retirement income calculator at the same website — a fascinating, but also scary, numbers game that may have you joining the ant farm.
BetterInvesting is a national nonprofit organization that has been empowering individual investors since 1951. Founded in Detroit, the association (formerly known as National Association of Investors Corporation) was borne out of the conviction that anyone can become a successful long-term investor by following commonsense investing practices. BetterInvesting has helped more than 5 million people become better, more informed investors by providing webinars, in-person events, easy-to-use online tools for analyzing stocks and mutual funds, a monthly magazine and a community of volunteers and like-minded investors. For more information about BetterInvesting, visit its website at http://www.betterinvesting.org/investing/landing/openhouse/blog/index.html or call toll free (877) 275-6242.
Want more BetterInvesting? Sign up for our free weekly investing newsletter at www.betterinvesting.org/weekly.