These are scary times when it comes to financial security. Between the uncertainty about the future of Social Security and company-sponsored pension plans becoming rare, most of us are left in charge of creating our own retirement security. Unfortunately, humans are not naturally wired to be great at saving for a distant future. More urgent and pressing needs and wants (whether helping a child pay for college or replacing the brakes on the car) tend to hog our attention and financial resources. That explains alarming headlines and worrisome study results: 1 in 3 Americans has no retirement savings, and even families with retirement savings often don’t have enough.
That is a troublesome trend, since the savings rate is the single largest determinant of financial security in retirement. What can you do to set your family up for more peace and less struggle in your older years? You might start with trying some tricks that are powered by the latest behavioral studies and research. Even if you are not a “natural” saver (few humans are!) you might find that following these suggestions can help you make good progress.
Make the future tangible
The biggest problem with the future is that it is not real. Theoretically, we are well aware that days turn into years, and that eventually we will want to power down in the work we do – or retire from working completely. The trouble is that this hypothetical future does not feel nearly as urgent and colorful as your world today. As a result, we tend to put our money where our attention is: in the present.
Since your brain won’t cooperate in this quest naturally, you might consider tricking it by making the future seem a little less hypothetical. Consider creating a “vision board” or a poster with pictures that represent your goals in retirement. You might include maps of places you would want to travel, photos of a cottage you would want to own, or pictures of grandkids you would get to enjoy if you don’t have to work to maintain your lifestyle.
You may also create an “avatar” photo of yourself, aged by 20 years or so, to bridge the gap between the way you look and feel today and the “you” that will want to retire in the future. Smart phone apps like Oldify can help you do that at a relatively low or no cost.
Split big goals into smaller ones
Saving $250,000 or $500,000 towards retirement sounds like a big goal. So big in fact that many people are too discouraged to give it a try!
Instead of staring at a big number, consider breaking it down into smaller chunks. Those with a longer stretch of time before retirement will reap the most benefit from the magic of compounding returns. Everyone’s numbers will be individual (and you should be working with a financial planner to nail yours down!) but be sure to break them down to the lowest possible level. If you want to save $50,000 over the next five years, it will translate into $10,000 a year, $833 a month, or just under $200 per week.
Automate as much as you can
Saving money is a little like flossing. You know it’s important. Professionals scold you when you fail to do it regularly. And yet, creating the regular habit of it can provide to be a challenge.
Once you have decided on your new savings pattern, you may consider removing your decision-making from the process altogether. By setting up a pre-determined automated weekly transfer to a savings account, you don’t have to remember to save. The money is moved seamlessly, and you can watch the balance grow without having to draw on your willpower to press the button. By automating the process, you are making money decisions after you have set your savings aside – as opposed to trying to decide whether you will make room for your savings this week.
You might set up an automated transfer within your regular banking accounts, or try an app like Betterment, Digit or Acorns. Painless savings, here we come!
Finding the motivation to get saving NOW
Let your new savings plan be detailed but flexible. After all, financial emergencies do happen, and you may find yourself straying from your perfect path from time to time. My advice is to keep your focus on progress, not absolute numbers and time frames. If it takes you 16 months instead of 12 to save $10,000, you are still well ahead compared to not having made any constructive changes at all. Be patient, track your progress and keep at it. Your future self will thank you!