In last month’s article, we looked at some of the reasons why many people have a hard time saving for retirement. We naturally have a bias toward living in the present. We tend to value immediate gratification versus the longer-term considerations of future rewards. Experiments have shown that our brains are wired to give us a biochemical “charge” (in the form of dopamine released) when we indulge in the short-term satisfaction of spending money or similarly getting something we want (such as a marshmallow now versus two marshmallows later.) Saving feels like depriving ourselves.
Some people are naturally good at saving. How can the rest of us become better at it?
Four key tips to saving for retirement
1. Automate saving where possible. Take advantage of automatic deductions from your paycheck to be deposited into a 401k account. Using “default” options actually helps people save more. That’s why some employers have adopted automatic enrollment into their 401k programs. You’re automatically in the program to save. If you don’t want to save you have to do something to change it.
2. Visualize the future. There are two parts to this. The future is abstract. But what if you could see it more clearly? One tool to accomplish this involves taking a current photo of yourself and then using software to age you 10, 20 and 30 years. Seeing an image of your future self has a profound impact on your willingness to save.
In research studies when people were asked to imagine themselves as “old,” the neural patterns activated in their brains were similar to those evoked by the sight of a stranger. A paper written at the Stanford Center for Longevity found that when test subjects viewed an age-progressed photo of themselves, they experienced empathy with that person. This response led to an astonishing 40% increase in willingness to save for retirement.
The second part of visualizing the future is to make your goals and dreams very specific. Envision what you want in the future – where you will live, what you will do each day. Hold these images in mind when faced with a decision to spend now or to save for the awesome future that awaits you.
3. Clarify your values and priorities. In my work with clients, I consistently strive to help people make sure their money goes toward those things that matter most. List your top values and then prioritize them. If preparing for retirement is high on your list, make sure you take actions to support that goal. This will enable you to make more conscious choices when the urge arises to spend now on something less important.
4. Seek help. A financial planner or advisor can provide accountability as well as expertise. The planning process helps define your values and priorities, and outlines clear steps, like a recipe to follow. This allows you to create your future with intention. Having a plan and someone to help with accountability will increase the odds of getting where you want to go.
And now, back to the future. What will our older selves think of the choices we have made today? We’ve looked at some of the factors that interfere with our ability to save. Clearly the bias we have toward the present makes the future seem less compelling. The part of our brain that alerts us to danger and encourages us to seek reward provides us with a jolt that makes us feel good when spending today. But if we can really “see” ourselves as older, we develop empathy for the person we’ll become. This makes us more likely to save.
Sorting out our values and priorities enables us to consciously direct our money to those areas we identify as most important to us. Automating saving where possible helps to avoid some of the issues we’ve touched upon here. Enlisting the services of a financial planner is another option to increase your odds of success in saving. Take the steps necessary to allow your future self to look back on what you’re doing today with pride and gratitude. You’ll be able to say it was a challenge but you did well. And it was worth the effort!