Compound interest for good decisions in retirement

Your life and your financial accounts are the sum of your choices, especially in retirement.

If you want a retirement you can proudly call your golden years, that means making some choices earlier in life that lead you there. And they’re not all big decisions.

Chips and beer by the pool or vigorously swimming in the pool?

Buying that $300 set of headphones now or delaying your gratification?

Going out to eat every night or simple meals at home?

Being too busy for friends or building friendships that will last through your retirement?

If you make the wrong decision once on any of the decisions above, it won’t have much effect on you. But you do it every time, and well…let’s just say chips and beer are easier than swimming for me, so I know what problems this creates over time.

As the Retirement Answer Man, I talk about the holistic retirement. It’s not all numbers, Social Security or portfolios—though I do talk about those too.

When you work with me, you’re walking toward an ideal retirement with someone who knows your situation and wants to see the best happen for you.


So I want to tell you how small decisions can make a big impact on your life.

The librarian who gave away $4 million

Last year, a remarkable librarian died. But the guy didn’t stand out.

He drove a 1992 Plymouth, lived solo and “never went out,” according to CNBC. And here’s what his financial advisor said about how he lived:

"He would have some Fritos and a Coke for breakfast, a quick cheese sandwich at the library, and at home would have a frozen dinner because the only thing he had to work with was a microwave."

But this guy was a literal multimillionaire.

And he left his entire $4 million estate to the University of New Hampshire where he graduated and worked as a librarian for nearly 50 years.

Talk about a lesson on the compounding effect.

This man sunk most of his somewhat meager income into a checking account and certificates of deposit, where it compounded over the years. So even though he wasn’t getting rich quick on his salary, he was getting rich.

If you don’t know what compound interest is, let’s go through a quick example. If you invest $10,000 this year and it earns 10 percent interest, next year you’ll have $1,000 more. If you leave it invested and get the same returns, you’ll have $1,100 more. The next year? $1,210.

Without adding anything to that money except the interest, in 50 years you’d have almost $1.2 million. 

And that’s how to become a millionaire.

The painful way.

See, the flipside of his life, at least to me as a casual observer, is that he didn’t live an extraordinary life. He didn’t get much except a low standard of living for a millionaire.

Even his $4 million donation was a surprise to the university. In other words, he never even got to see the gratitude that his generosity would create or know how the university would use his legacy. (In case you’re wondering, they bought a $1 million video scoreboard for the football stadium, launched a $2.5 million career center and allocated $100,000 to the library where the man worked.)

His choices probably started small—scrimp and save so he can afford a CD and have a better standard of living later.

Then his small decisions snowballed into a lifestyle.

A lifestyle I’m guessing you wouldn’t aspire to.

Striking a balance

You only get once chance to live life. Live the life you want to live.

If that’s a ’92 Plymouth and Fritos and Coke for breakfast, that’s your issue not mine.

The best planners will construct your future in such a way that your present isn’t crying.

One person came to me in tears after her financial advisor recommended giving up a pension in favor of a lump sum because of some Social Security changes. Some other big negative changes bubbled up too.

Her story had a lot of meat, but it came down to a decision.

Even the biggest doors swing on little hinges. And the biggest decisions are informed by little decisions.

I advised this woman to fall back on a solid decision-making process to live the life she wanted to live. Now and in retirement.

Big decisions should be the sum of a lot of little conversations along the way.

Not a big, hairy process that bogs down your whole life and retirement. If you prepare by making the right little decisions along the way, your retirement will just sort of work out. 

Question of the week:

What little decisions, good or bad, have you consistently made that created big results over time?

Answer in the comments below.

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