Posted by Hakyun Morrissey.
The biggest regret I hear from baby boomers is “I wish I’d started saving earlier.”
As with many regrets, there’s often a tone of self-recrimination. It’s not the online resources they rue not having 30 years ago. What boomers regret is choosing to ignore the advice they did receive (albeit the old-fashioned way).
Retirement is like a day of reckoning—the nearer its approach, the more real it becomes. In the consultations and seminars I teach, I find it’s the boomer generation who are the most eager students. The paradox is that younger people would gain much more from that savings advice. Compound interest grows exponentially, so millennials can put away less each month to end up with the same amount at retirement. Boomers know from experience that the closer you are to retirement day, the fewer years your savings have to grow.
How can this hard-won knowledge be passed on to the younger generation? A better question to ask might be what might force millennials to sit up and take notice?
Bridging the gap between present and future self
The “selfie generation” are sometimes accused of narcissism, even of lacking empathy. I would argue that the young have always lacked empathy— for their future selves. Think about it: When you are 27, how often do you think of yourself at 67? My guess is, not that often. Because millennials are more likely to view their retired selves as strangers, they don’t want to save for a stage of life that feels so remote, it’s as though it will be lived by someone else.
The good news: Millennials are the first generation with the tools to bridge that empathy gap between the present self and future self—using the very selfies for which they are unfairly maligned.
Behavioral science is finding innovative ways to entice people to save for retirement. Technology can enable young people to empathize with their future selves in whole new ways. While boomers might have used pen and paper to imagine how their future selves might look and feel in retirement, millennials can use their smartphones to imagine themselves at 65 much more vividly. For example, there are face-aging apps you can download for free that will “age-morph” a recent selfie, making you look decades older.
There’s also virtual reality software out there that puts you face-to-face with your retirement-age avatar, transforming the way you think about the future you, and possibly your attitude toward saving. Studies have in fact shown that young people who engage with this technology are more willing to save more. Plus, face-aging apps are really fun to use.
Different goals for different generations:
Goal for millennials: Boomers are more likely to have an actual retirement date set (say, July 16th, 2020) and having that specific date in mind prompts them to aim for a more concrete savings goal. Millennials may benefit from setting a specific retirement date, as well.
Consider setting your 403(b) contribution rate with an automatic increase of 1% per year, then sit back and forget about it. Chances are, you won’t really miss that small deduction from your pay check after the first month.
Over 35 years, that 1% increase could be the behavior difference that provides you approximately $400,000 more in savings.*
Like many good habits, it can seem daunting, but once you’re in it you wonder why you didn’t start earlier. Young women are, as a group, more likely to be out of the workforce for a while, at some point in their careers, and so it’s more imperative that they start earlier.
Goal for boomers: Review your financial plan on a yearly basis and make changes accordingly. Does your portfolio match your time horizon and risk tolerance? Take advantage of catch-up contributions. If there’s a lot of catching up to do, and you need some moral support, why not start a meetup group with friends or coworkers? You get empowered by having conversations with other women, a community in which you can share your successes, console each other when there are setbacks, encourage and inspire each other. As with anyone of working age, a 1% increase to your 403(b) contributions may also be one of your aims.
Not forgetting Generation X: Gen-Xers can find themselves more squeezed, with aging parents on one side and college-bound kids on the other. The goal here should be accumulating, although it can be hard to find any money to spare, given those financial burdens. How to make room in your budget? It helps if you divide needs from wishes. As with other generations, you may consider an annual 1% increase to your 403(b) contribution rate.
So why start now? We all need to “own” our financial future and don’t want to rely on others or be a burden on our loved ones. Make a small change today and your future self will thank you.