“Finance is something I do to relax,” says neurologist-turned-investment-adviser William J. Bernstein, who’s the author of the new book, “If You Can: How Millennials Can Get Rich Slowly.”
You heard right: slowly.
Once upon a time, the standard American dream meant a house, two kids, a dog and a comfortable retirement by age 65. But these days, many of us are grateful just to be able to afford one child while also juggling hefty student loans and trying to save for retirement. That last bit is particularly problematic for members of the Millennial set: According to a recent Country Financial report, up to 32% of adults between the ages of 18 and 29 haven’t started saving for their golden years—at all.
So what is this generation to do?
Start saving what you can now. Even if you can set aside only a small amount, slow-and-steady saving over time wins the retirement race, says Bernstein.
We sat down with Bernstein to delve deeper into his book, as well as hear more about why the slow-and-steady approach to saving can help you forge a secure financial future—no matter what your age.
Inquiring minds want to know—what inspired you to switch from medicine to finance?
William J. Bernstein: I had a fairly conventional “Ozzie and Harriet” middle-class, suburban upbringing. So I did what bright young kids did in that age: I went to medical school.
But I work in a country that doesn’t have a functioning social welfare program, so I began researching how to approach retirement—and realized that my scientific way of looking at things could be useful to investors.
For starters, much of the math you use in physical science is the same as in finance, and many accomplished people in the finance world started off in science. Also, as a neurologist, I learned a lot about the flaws in the human condition—for example, some of the most confident doctors are also the most incompetent. Along the same lines, if you ask the best people in finance where the market is going to go in the next day or week, they’ll say, “I have no idea.”
Yet somehow we have decided, as a society, that it’s perfectly fine for people to manage their own retirement portfolios—an activity that’s difficult both intellectually and emotionally. So I started to write about all of these dilemmas through blogs and books, and eventually I became an investment adviser.
Do you think our culture has become more centered on making money quickly and relying on that hope, as opposed to saving?
Well, yes, you can see that in the declining savings rate—but it’s hard to say what that’s due to though. There are two possibilities, and the first is the obvious: an increasingly consumer-driven, instant-gratification society.
Treat saving a portion of your salary each month as an expense that’s just as important as paying rent or buying food. And tell yourself, “If I don’t do this, I’ll be so sorry later.”
The second is more subtle, which is the remoteness of the current generation from widespread and catastrophic hardship. My parents’ generation saved like mad because they saw what the Depression could do to people. Japan and China also have high savings rates because they’ve known very hard times indeed. The Millennials? Not so much.
There’s nothing wrong with making a bundle quickly, so long as you save a big chunk of it. But a slow, methodical business/career plan usually turns out better than one that isn’t.
So why the focus on helping Millennials?
If you look at the data, and you start with old people, you realize that most of them are in very bad shape.
According to the Employee Benefit Research Institute and the Retirement Research Consortium, the 401(k) balance for [people in their 60s and 70s] falls between $100,000 and $150,000—but that’s skewed upwards because of the very wealthy few. At the median, it’s mid-five figures, at best, and $35,000 isn’t going to cut it for their medical bills and expenses.
That’s not “retirement.” And there’s little those people are going to be able to do about it now. As for Millennials, the one thing I hear over and over from the ones I meet is how Social Security isn’t going to be there for them—they’re terrified of that.
So I’m like a triage doctor on a battlefield, who sorts people into three groups: those who will survive no matter what, those who will die no matter what and the ones you can actually help—and those are the young people. As one of those older people who actually has done well financially, my book is one small way of giving back to the next generation.
So how does one go about saving at a slow-and-steady rate?
Pay yourself first, instead of borrowing from your future self. So treat saving a portion of your salary each month [ideally around 20%] as a necessary expense that’s just as important as paying rent or buying food. And tell yourself, “If I don’t do this, I’ll be so sorry later.”
And this doesn’t just apply to young people. If you’re older, and you up the 20% by a little less than a percentage a year, you’d be fine. So if you’re 35 years old, maybe you should be saving 23% a year.
Becoming rich does you no good at all if you don’t have family and friends, and, for that matter, professional relationships you value.
In addition to money, is there anything else people should focus on that may help secure their future?
As my mother used to say, “Money cannot buy everything, but at least you can suffer in comfort.” More seriously, making money the sole goal makes people miserable in the long run. So you need to balance career satisfaction and a rewarding personal life with finance. Becoming rich does you no good at all if you don’t have family and friends and, for that matter, professional relationships you value.
In your book, you talk about the psychology of saving for retirement, saying that humans aren’t designed to manage long-term risks. So how do you troubleshoot this?
Changing someone’s thinking and values is the hardest thing to do. The best technique that I’ve heard of—although it’s an uncomfortable thing to do—is to imagine yourself at age 65 or 70.
Imagine what it would be like to be poor and your grandparents’ age, and then say to yourself, “I’m going to have to cut down on the data package on my smartphone or not have that latte every day.” For a typical person, you can save a few hundred dollars a month this way. Trust me—you can live without HBO!
Sure, it’s not fun, but it’s not 10% as bad as pushing a shopping cart under an underpass in the rain when you’re 70 years old.
Story originally by LearnVest.