Instant Gratification and Long-Term Results

Our fast-paced society continues to get faster with the latest technological innovations. When I was in high school, to do research for papers, I had to go to the library and use the Dewey Decimal System (for those too young to remember, Google it) or work through my encyclopedias (like Wikipedia but in paper form) to get information I required. Computers were in their infancy. I was born in 1970 and the first microprocessor emerged from a new startup called Intel in 1970 and 71. In high school, instead of learning on a computer keyboard, I learned to type on a typewriter, which does help now in writing this article.

With the advent of personal computers, laptops and now smartphones, knowledge is literally at our fingertips. Wondering who wrote the book, “The Secret Life of Bees”? Merely get on your iPhone or computer and Google it. (You know a company has made it when their name becomes a verb for the very thing it does). Not only will you find the author (Sue Monk Kidd), you will find out about the book, where to buy it and all about the movie adaption. If you order it from Amazon Prime, you can get it in two days. Even better, if you have a Kindle or iPad, you can download it and have the full book instantaneously. Not sure you want to commit to the whole book? Get a reading sample online and try it out. Want to watch the movie instead? Go to Netflix and hit download.

Our society has become one of instant gratification. The speed with which we can pull information together for an article, contact a friend with a text or find someone’s life story (or if they are “in a relationship” on Facebook) is almost instantaneous. I fear with this immediate gratification we may become short-sighted about long-term effects, outcomes and balance.

The first place there may be imbalance is in spending and saving. The financial planner we use pulls together the here-and-now (net worth) and the future spending needs in retirement, college or for other financial goals. Obviously, many times, people need to save more for the type of retirement they want. There are also times when people received an inheritance or saved aggressively and are over prepared for retirement. Many look at travel in retirement as a large expense.

Deciding how to balance the ‘here-and-now’ needs of children, housing, etc., with the ‘future’ needs of healthcare, travel and general expenses of retirement is one the hardest parts of planning. It is much easier to think of the immediate want in front of you rather than a distant need in 20 years. Yet, it is easier to save 20 years before retirement than to start five or even 10 years before you retire.

The easiest way to plan for a long-term goal is to actually plan. Take a long-term goal and put steps in place to get you there.

As David Bach illustrated in The Automatic Millionaire (another book you can Google), putting money away first helps you take care of those long-term goals by paying yourself first. Have money going into your employer’s retirement at the correct percentage, money going into savings and doing all of it out of your paycheck or checking account every month. Once that is set, you can use the remainder for the ‘now.’

Another instant gratification shortfall is in the tax arena. People, particularly (and understandably) accountants look at where taxes can be saved in the here and now. This can be done by putting more money in tax-deductible retirement accounts, such as a Traditional IRA or regular 401k contribution. Another consideration is taxes in retirement.

Consider $1,000 distributed in retirement from a traditional IRA: that $1,000 is considered income. In Pennsylvania, only federal taxes are due on the $1,000. Therefore, you may have to withhold at least 15 percent for the IRS, leaving you with $850 to live on in retirement. Take too much from an IRA and you may owe taxes on your social security.

If instead you put money into a Roth or did a Roth contribution into your 401k, you may not get the instant gratification of lower income in the current tax year but any qualified distributions from the Roth would be tax-free. Therefore, taking the same $1,000 distribution from a Roth in retirement lets you keep the full $1,000. In addition, it will not be counted against you when looking at taxing your social security. It is definitely something to consider, especially for young workers. Tax diversification will leave you with more options and possibly fewer taxes later on.

One of the more dangerous aspects of the preference for instant gratification is investing. Investors need to be aware that investing is a long-term endeavor. Your portfolio will definitely not go up every year or for several years. Staying invested and having a long-term, diversified portfolio that is properly aligned with your risk tolerance and time frame will get you where you need to go. You just need to maintain the patience and understanding that it will.

 The here-and-now deserves your attention, but not at the expense of your future.