Psychology can play a major role in whether or not you succeed in meeting your retirement savings goals. Which of these lies do you tell yourself?
The new start that can come with the turn of the calendar can be refreshing. All too often, however, we begin rather quickly to fall back onto the same patterns. I’ve written before on the psychology of saving for retirement. It’s a topic I return to often, however, because how we think has a lot to do with how we save—or don’t save.
One of the behaviors we engage in when we don’t save is making excuses or developing rationalizations. These excuses come easily even to dentists, despite the fact that they're generally among the best compensated professionals. There is no foolproof way to eliminate this excuse-making, but just being aware of the most common lies we tell ourselves can make us less likely to use them.
“I’ll save more when I earn more/own my own practice.” Maybe. But maybe not. If you’ve just started your career in dentistry, you are probably paying off student loans, seeking a dental partnership, or developing some kind of plan to purchase your own practice. Those represent significant financial challenges. But running your own practice, if indeed that’s your goal, is no slouch, either. As your income grows, so might your desire to expand your services, upgrade your equipment, and hire additional staff. Dentists do typically make more later in their careers; a dentist’s peak earning years are typically in their early to mid-50s. You’re not planning to wait until then, right? While you can take advantage of catch-up contributions to a 401(k) or 403(b) plan in your 50s, the simple truth is that when you start saving—and how much—are the two biggest factors that will determine how much you have to retire on.
Practice challenges aside, as your income improves, so, generally, does your lifestyle. The mortgage and car payment may get larger as well. Our choices of goods and services may lean towards premium brands. Earning more doesn’t always equate to having “extra” funds to set aside. So don’t tell this lie. Start saving what you can now.
“I’ll save more as soon as I get out of debt.” This excuse is among the more interesting ones, because there is some logical basis for it, particularly for dentists, who more often than not carry a large load of debt through the early years of their career. This can be an excuse, though, that’s too easy to tell ourselves.
The key is to differentiate your “good debt” from “bad debt.” Keep making payments against good debt, but not at the price of your retirement savings. Student loan debt, while it can be seen as an albatross, is probably not high-interest date. Mortgage debt is also unlikely to be high-interest debt, unless you are paying an out-of-market interest rate for some reason. But credit cards or personal loans that carry high interest rates should be paid off as soon as possible, because they are likely to outpace savings or investment gains in the long run.
“I don’t have time to devote to an investment strategy.” This is a bad lie. This is akin to saying your current self doesn’t have time to plan for your own future. It’s also an excuse that is really simple to overcome. Consider working with an advisor, or consider an investment vehicle designed for its ease of use, such as a mutual fund or lifecyle fund. Today’s retirement plan providers
including Fidelity, Vanguard, TIAA-CREF, and many others
have made huge strides in making investing easier, such as providing online and in-person advice, self-management tools, easily available education, and many other resources that will enable you to put the investment basics in place with every little investment of time or requirement for expertise.
“It’s too late to get started now.” I saved the worst lie of all for last. It’s true that the later you start saving for retirement, the less you will ultimately have to live on, and the longer you may need to practice. But every dollar you invest counts, and you can’t let past sins dictate future decisions. With compounding interest and catch-up contributions allowed for older earners, it’s never too late to start an aggressive savings strategy.
Excuses abound, and they can be easier than making the sacrifices needed now to secure a better retirement. Your future self is counting on you right now.