CFI Blog

The One Trick You Need to Save More for Retirement

Do you worry about your retirement?

Don’t think you save enough?

Do you tell yourself that, come next year, you’re going to save more, gosh darn it?

Do you find that, when next year comes around, you’re not saving any more?

Want to break the cycle?

Read on and find out how.

“Without deadlines and restrictions I just tend to become preoccupied with other things.”
–Val Kilmer

Need to Save

When I was in college, I was a master at procrastination. I lived by such phrases as “when in doubt, sleep it out,” “procrastination is the key to tomorrow,” and “rough draft = final copy.” Only once did I ever turn in a paper early. It was the Sosh paper (you West Point grads who read this article will know exactly the paper to which I refer). I’m not entirely sure why I did it, except that I didn’t want to get caught up in the Sosh Run since I didn’t want to be a conformist in an entirely conformist school. Never one to go with the trend was I.

However, for every other paper that I can remember, I was madly banging away on my keyboard the day and night before a paper was due, feverishly trying to meet page counts, source counts, and, hopefully, intellectually made points counts. I had refined last minute paper writing down to such an art that I could write my second semester plebe English papers in the hour before the class.

The deadlines for the papers were published well in advance. It wasn’t as if I didn’t know the class syllabus. Almost every professor encouraged us to turn our papers early for a no strings attached review and evaluation that would give us feedback which should, in turn, increase our grades. We had incentives to get good grades; you got weekend passes if your grade point average was over a 3.0 and then again over a 3.67. Yet, I and almost all of my classmates passed up on these opportunities to improve our grades. But, we did make deadlines, for the punishments for failing to meet those deadlines was swift and harsh and involved hours and hours of walking back and forth in Central Area dressed up in your best uniforms.

If students at a military academy don’t take advantage of professors’ largesse in reviewing papers before they are due, how do their civilian college counterparts fare? INSEAD’s Klaus Wertenbroch and Duke’s Dan Ariely set out to answer that question. They taught the same course to three different classes. All three classes had three papers due. The first class was given three equally spaced deadlines for completing the papers. The second class was told that they could turn in the papers at any point up until the end of the course. The third class was given a week to determine their own deadlines and were given a penalty of one percentage point off the grade for each day they missed their own deadlines for the papers. No extra credit or incentive was provided for turning in papers early, so the second and third class would have the most incentive to wait until the last minute to turn in papers so that they could have the benefits of all of the semester’s worth of teaching to apply to their papers.

How did they do?

It turned out that the best performing group was the first class – the ones with the evenly spaced deadlines. Right behind them, just slightly lower in grades, was the group from the third class who set their own evenly spaced deadlines. Lagging far behind were the students in the second class and the ones in the third class who chose the end of the semester.

The reason that externally and self-imposed deadlines – even ones which could potentially come at a cost, like fewer lessons to gain knowledge or a grade penalty for tardiness – help us in situations where we cannot exhibit self-control. Monkey Brain doesn’t like to do things which are hard or don’t cause pleasure, and, unless your academic experience was different than mine, writing term papers and essays is hard and doesn’t cause pleasure. So, Monkey Brain likes to procrastinate, doing something fun now while relegating Future You to the library poring over books and academic journals.

We often go to great lengths to avoid having to exercise willpower. If you’re on a diet and know that you’ll be tempted by dessert when you go out to eat, you will ask the wait staff not to roll the dessert cart by your table or not to give you a dessert menu. It’s easier to simply avoid temptation than to force yourself to say no.

The same approach works for the Save More Tomorrow program with 401k providers. The problem is that not everyone has access to a 401k plan and only 11% of them actually offer the program.

If you want to save more for retirement and don’t have access to a 401k plan with the Save More Tomorrow program, what do you do?

It’s easy.

Set a deadline.

Put a reminder in your calendar program (or write it in your calendar if you still use paper calendars). In the reminder, tell yourself to increase automatic investments in your retirement account or your funds set aside for retirement (you are, after all, value cost averaging, right?) by $X per month.

Don’t stop there.

Set the calendar reminder to repeat annually.

Now you’ve created a deadline. Furthermore, by making the deadline repeat annually, you’re increasing the amount you save each year.

However, just like in school, there has to be a consequence to failing to meet the deadline. After all, if you turned in a paper late, unless there was some tragic event which prevented you from doing so, like the death of your favorite goldfish Jaws, your grade suffered.

You need to create consequences.

I recommend using the antimotivation techniques that I described previously to create a distasteful punishment for failing to increase your contributions and having your accountabilibuddy hold your feet to the fire.

You also need to make sure that the amount you choose is one that you can reasonably live with. It will do you little good to save for a month only to stop the savings the next month. Instead, make it one which, while temporarily uncomfortable, is one to which you’d adapt in a couple of months. You can use hedonic adaptation to your advantage, and pretty soon you won’t notice the money missing from your monthly budget. Additionally, if it’s painful, it will encourage you to improve performance at work to justify getting a raise or to start a side gig to give yourself an additional source of income.

If you try this, let me know how it works. We do our annual investment review on January 1 each year (or, if we’re out with friends at a cabin celebrating New Year’s, the day we get home). I’ve done it so long now that it’s ingrained in my psyche.

How else do you trick Monkey Brain into letting you save more for retirement? Tell us your experiences in the comments below!

Around a year ago, I wrote about why you might want to keep more than six months of expenses in liquid assets. If you haven’t read it, go check it out!

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John Davis
John Davis is a nationally recognized expert on credit reporting, credit scoring, and identity theft. He has written four books about his expertise in the field and has been featured extensively in numerous media outlets such as The Wall Street Journal, The Washington Post, CNN, CBS News, CNBC, Fox Business, and many more. With over 20 years of experience helping consumers understand their credit and identity protection rights, John is passionate about empowering people to take control of their finances. He works with financial institutions to develop consumer-friendly policies that promote financial literacy and responsible borrowing habits.

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