It may seem that a marshmallow has very little to do with your retirement. However, delayed gratification has everything to do with retirement. Stanford researchers measured delayed gratification in young children using a marshmallow test. I’ll take a look at the marshmallow test, the importance of retirement savings and strategies you can use to increase retirement savings, which takes much delayed gratification.
Researchers told children that they can have one marshmallow now, however, if they wait and don’t eat the marshmallow they will be given a second marshmallow when the researcher returns. Then the child can eat both! You can view some truly adorable children trying to resist temptation. As you can see, it is a real challenge to resist the temptation to eat the marshmallow in front of them. This test is a predictor of many future successes, just as delaying spending (and saving those dollars) is the most important factor when it comes to retirement success, according to this Putnam Study.
Retirement: The Ultimate Test of Delayed Gratification
Retirement savings is the ultimate test of delayed gratification as saving for retirement is a marathon, not a sprint. Over 30-50 years that it takes to save for retirement, many temptations will arise. For qualified retirement accounts there are penalties for early withdrawals. Here is what the IRS has to say about it. Even these penalties don’t deter some folks from delaying gratification. It can be hard to be consistent and continue to increase retirement savings.
Long Term Savings Strategies
Here are a few strategies to help you resist temptation and succeed. Start by putting an emergency fund in place so that when (not if) and emergency arises you have this fund to access and NOT your retirement account. Save monthly for annual and incremental expenses. This is for things like, vacations or replacement of electronics or furniture. That way you are saving for expenses you can anticipate. This will smooth out expenses and make retirement contributions consistent.
Make Savings Automatic
Each paycheck make an automatic transfer to an IRA. This is in addition to the money that is taken out before you receive your net pay and put into your 401(k). Commit to increasing savings when you receive a raise, even if it is just a percent or two. Each of these strategies will add up over time to help you create meaningful retirement savings.
Learning from the marshmallow test can help us delay gratification, increase retirement funds and SaveUp!
This post was written by SaveUp’s personal finance contributing writer, Catherine Hawley, CFP®