A Lesson in Not Taking the Marshmallow

In the late 1960’s, Walter Mischel, a psychologist at Stanford University, conducted a research study now commonly referred to as the Marshmallow Experiment. The study took an initial look at the development of children’s ability to delay instant gratification. The experiment while fairly simple in delivery provides valuable takeaways that are applicable to retirement planning.

The study began with researchers placing one or two kids at a small table. Researchers then placed a marshmallow on the table in front of each child and told them that they could either eat the marshmallow now or they could wait until the instructor returned and if they hadn’t eaten the marshmallow they’d be given a second for their patience. Seems easy enough, right?

Wrong! For most 4-6 years olds the idea of NOT eating a delicious looking marshmallow sitting just inches away proved for many to be an exercise in torture.

Researchers conducted follow-up studies years later on the children’s average ACT scores, body mass index, educational attainment, and other measures of success finding that the children that were able to delay eating the marshmallow in order to gain a second treat only ten minutes later had higher test scores, were in better shape, and scored better in many other areas.

So how does the marshmallow experiment relate to Social Security and retirement planning?

Our preference to prefer instant gratification to the delayed is through no fault of our own. Humans are innately hard-wired to prefer instant gratification and it is certainly not unique to children. It can be seen in aspects of everyday life. It can be seen when we decide to watch our favorite TV show now instead of heading to the gym, which provides long-term benefits. It can be seen when we decide to spend just a little more than we planned on that vacation, giving up the opportunity to save just a little bit more for tomorrow.

It can also be seen when looking at the percentage of Americans who take a reduced Social Security benefit at age 62; nearly 50%.And the percentage of Americans who delay Social Security benefits until they’ve nearly doubled at age 70; less than 1%.

Now admittedly, many retirees need to take the marshmallow right away and begin Social Security at age 62 for various reasons, but for those who don’t need to/shouldn’t be taking benefits early they are giving up much more than just a second marshmallow. In many cases, they are giving up $100,000 to $300,000 in cumulative Social Security benefits over their lifetimes!!

There is no one size fits all approach to Social Security claiming or any aspect of retirement planning for that matter. Taking the marshmallow early should be prescribed for some retirees (i.e. short life expectancy, cash flow needs) and for some couples it might even make sense to consider some combination of one spouse taking the marshmallow early while the other waits to get two. At the end of the day, what proves critical is finding a balance between instant gratification and long-term preparedness.

None of us are guaranteed anything past the present, so there is something to be said for living for today. However, it remains critical to plan for the future even if that means giving up a part of that marshmallow today to ensure that if and when the future comes we’ll have enough marshmallows waiting to be enjoyed.