Carpe Diem vs Carpe Vitam

How to address the tug-of-war between having what you want now versus what you'll need in the future.

This post was triggered by a recent Wall Street Journal article in which a former Treasury Department employee and director of a university think tank on retirement research described her regrets in making some poor decisions regarding her own retirement plan, including, “taking her pension early and not moving money to a Roth 401(k).”

This is more common than you might imagine. In fact, we expect it is the norm.

Here’s an excerpt:

Like many people, she lacks the time and interest to manage money, she says. She relies on occasional advice from her son, who works at a financial firm.

“Every now and then, he tells me to send him my asset allocation and then he tells me how to adjust it. If I had to figure out what to invest in, I’d have no clue,” . . . “People have busy lives. Retirement planning should not be something they have to put a lot of effort into.”

Carpe Diem vs Carpe Vitam

We’ve spoken to countless people in all fields who express a similar “cluelessness” when it comes to investing and retirement planning.

The first takeaway from this is don’t beat yourself up if you feel the same way. It’s human nature.

It’s Carpe Diem vs Carpe Vitam.

Seize the day versus seize the life.

In other words, we are far more likely to pay attention to what affects us today versus what may impact us sometime down the road.

Or, as we noted in our post on The Marshmallow Experiment, it’s the ongoing battle between instant and delayed gratification.

The Goal of Financial Management

So, what are we trying to do when we talk about managing our money? We suggest the following:

The goal of financial management is to have a plan and process in place so you don’t have to worry about money—now or in the future—in order to get the most out of life.

This implies Carpe Diem and Carpe Vitam. Take care of what you need today but give some time to preparing for the future.

When we focus only on the present, we run the risk of sacrificing—to varying degrees—our long-term physical, financial, and/or mental health.

What Has the Financial Industry Done About It?

The financial industry has taken some steps to address the realization that, left to their own devices, many people would completely avoid retirement planning (and for some, meeting daily financial needs legitimately precludes allocating money to investing—but it only takes a little to get started).

Until the 1970s, employers largely took care of providing retirement benefits through defined benefit plans, aka, pension plans.

This began to change in the late 70s with, among other things, The Revenue Act of 1978 which added section 401(k) to the tax code, allowing employees to defer paying taxes on earnings saved in an employer's plan.

The days of pension plans are long gone and the 401(k) plan (a defined contribution plan) is now the norm for corporate retirement planning. The responsibility for making sure you have enough money to retire has shifted from the employer to the employee.

In recognition of the difficulty and/or reluctance to deal with this, most companies have implemented automatic enrollment in their 401(k) plans and offer Target Date Funds as a default investment option. These funds are designed to do your asset allocation (mix of stocks, bonds, and short-term investments) for you based on your age and approximate year you’d be expected to retire.

These are helpful but, by necessity, are one-size-fits-all solutions and not necessarily the best choice for everyone.

The bigger problem is that not all workers are covered by a retirement plan, increasing the challenge of preparing for retirement.

What Can You Do About It?

So, what can you do about it? Here are four things for starters.

Awareness - knowing that this is a common issue is a good place to start, including acknowledging that not wanting to deal with it is normal—but it is worth it!

Understanding - in order to deal with an issue, you need to understand it. You need to educate yourself. Reading the posts on this Substack will help. The goal, over time, is to build smart financial habits that become second nature.

Plan and Process - you need a plan and a process to implement the plan and make sure you stay on course. You don’t need to do all the work. If you have a retirement plan, your employer is already doing things in your best interest. But you really need to understand what’s going on so you can tweak the plan to fit your unique needs.

Blinders - as much as possible, you need to avoid the constant bombardment of financial information—the Dow is up; the Dow is down—that can shake your confidence in your plan. Investing is a long-term endeavor and the conflicting short-term chatter is just noise. Learn to ignore it and you’ll end up with more money and less stress.

Money Isn’t Everything

Keep in mind that, as noted above, the purpose of money is to help you live the life you want to live. You need enough money to accomplish that, but not necessarily more than that.

Money can be a trap if you begin to view it as an End rather than a Means. Ebenezer Scrooge, after all, wasn’t the happiest guy in London.

Which brings us to the question, how do you define success?

Success = Wealth

Success = Happiness

Clearly, these don’t need to be mutually exclusive, but sometimes they are.

Have you ever met someone who has plenty of money—and perhaps goes out of their way to show it—yet doesn’t seem particularly happy?

It’s hard to Carpe Diem, let alone, Carpe Vitam if you have a high-paying job that you hate:)

The Good News

The good news is it doesn’t take that much time to do the things we suggest. Once you’re Aware of the issue, you can Understand it with a minimal investment of time (it takes about 3 minutes a week to read these posts). If you have a retirement plan through your work, the Plan and Process is largely done for you, and if you don’t you have other options like IRAs. Either way, it’s worth spending an hour occasionally to meet with a financial advisor. Avoiding the financial noise—putting on Blinders—will actually save you time . . . and stress.

You won’t do everything perfectly, and that’s fine. With a few small steps though, you can put yourself in a position to Carpe Diem and Carpe Vitam!

Stuart & Sharon