Why is it so hard to get serious about saving for retirement?
If your retirement accounts aren't where you'd like them to be, cut yourself some slack. You’re human. Humans are hard-wired to prioritize what we want in the here and now vs. seeing to our future needs.
If you’ve ever stayed up too late (though you have to get up early), or spent extra on dinner (though you need new tires) or skipped a workout (though you’re signed up for a 5K), you know how easy it is to fall into the trap of shortchanging your future self.
What savers need to understand about brain science
We are downright inconsiderate to our future selves. That’s precisely what everyone should be thinking about when they’re saving for retirement. Brain scans reveal that when people imagine themselves in the future, there’s a marked drop-off of prefrontal cortex activity compared to a spike in engagement when they think about present-focused tasks or activities.
If you’ve been slacking on retirement savings, you may have been telling yourself that you need the money more now, and you’ll figure it out later. At the same time, you know you need to get started.
Now that you know how easily you can trick yourself into self-sabotaging your retirement savings, it’s time to set some intentions. Here’s a plan to help you get on track with your retirement savings.
1. Spend time in the future tense
Step one is making your retirement self both real and relatable. You can do this by casting a vision in vivid detail. The idea is if you can relate to your future self, you’ll have more compassion for their needs and feel more motivation to act.
A few ideas: Download an aging app to get acquainted with your future face. Tell a story about a day, a week, a year in the life of your golden years. What will you be doing? What will you need? What are you looking forward to? Dig into practical matters as well. Where will you live? Will you still have house payments? What are your expected health care needs? What’s your anticipated lifespan?
2. Calculate your savings target
The big question is how much you’ll need to fund a comfortable retirement. Many experts say most of us should set a target of $1 million. Depending on your age, circumstances and expected lifespan, $1 million in retirement savings may or may not be enough. Like everything related to personal finance, it ultimately depends on your individual needs and circumstances. With the help of online calculators and a financial planner, you can come up with a solid target.
To get you started, Minnwest has two online calculators:
3. Review your savings progress
How much do you have set aside so far? Are you on track, or is it time to increase your annual contribution? By the way, this is your reminder to track down all those dormant 401(k) and IRA accounts you’ve left behind with past employers. Download your statements and take stock. Set a reminder in your phone to revisit your accounts every six months to make sure your accounts are growing and assess the performance of your investments.
Is 15% of earnings still a good target for retirement savings?
Like anything, this depends on a multitude of factors affecting your needs and circumstances. What we can say is the conventional wisdom of diverting 15% of your earnings into an IRA or 401(k) is based on a number of assumptions:
- that you’re saving early and consistently, starting in your 20s
- at least half of your investments are stocks to grow your nest egg
- monthly expenses will remain stable in post-retirement
If you're starting your retirement savings later, say in your 30s or 40s, or if you have a long gap in employment, then upping the percentage from 15% might be wise. (On the other hand, if you have a pension, or you’re getting a sizeable inheritance, you may have enough cushion to use the money for other things.)
What to do if you’re saving less than 15% for retirement
Take baby steps to increase your withheld earnings to 15%. Use this time for making room in your budget for your nest egg and establishing that savings habit. Every six months, increase that percentage by 1% or use the percentage of any salary increase. Once you’ve reached the 15% target, then you can reassess whether it’s enough to meet your needs. The upside here is you’re in the habit of saving, and catching up will be less overwhelming.
4. Automate your savings and your increases
When saving for your future needs, don’t rely entirely on your willpower. Instead of manually transferring funds, automate it. If your account is through an employer, sign up for automatic paycheck withholdings. If you’re managing your own 401(k), change the settings to initiate automatic transfers. No forgetting, no temptation to skip payments. If possible, schedule increases for your contributions so they automatically take effect when the time arrives.
Get future-focused: Minnwest Bank offers IRAs
Do your future self a favor and start saving now with a Traditional or Roth IRA at Minnwest Bank. Our helpful bankers are here to help you set goals to fund the retirement of your dreams. To get started, fill out an online form, or call to book an appointment at your nearest Minnwest Bank.
