Better goal-setting increases retirement savings

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If you haven't heard the message that it's important to save early and often for your long-term future, you haven't been listening.

Financial advisors and other experts have long been beating that drum. But with just 22 percent of American workers highly confident that they will have enough money for a comfortable retirement, the message seems to be failing to resonate.

That's why some experts are talking about taking a different tack, and focusing on near-term goals in retirement saving. A recently published study by financial services association Limra found that only 3 in 10 millennials knew how much they should be saving for retirement, and only 4 in 10 Gen Xers and boomers knew the right amount. (Tweet This)

But if people are given goals, such as saving their salary by one time by age 35, two times by age 40, and so on, they may find those goals more understandable and achievable, the study suggested.

"[P]lan sponsors might want to encourage more near-term thinking and promote achievable savings goals for their workers," according to Limra. "If the horizons are more in view, workers can become more engaged in their retirement savings plans."

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Short-term planning may be more in line with how our brains are wired, experts said.

Until relatively recently, "people were really focused on just surviving until the end of the day. Life expectancy was relatively short, and immediate needs were so dominant," said Jennifer Putney, vice president of participant engagement at Prudential Retirement. "This whole concept of long-term planning is just completely foreign to the human brain."

As a result, she said, "you could make an argument for switching to a short-term perspective around savings, rather than asking people to work on acquiring a large pot of money at the end of the rainbow 20, 30, or 40 years in advance." For younger clients, she said, "we try not even to use the word retirement. We talk about saving for your future, creating additional opportunities."

Michael Liersch, managing director and head of behavioral finance for Merrill Lynch Wealth Management, is a firm believer in the power of near-term goals to improve savings behavior.

"When you bring the future to the present, people are much more able to make trade-offs that are in their interest," he said. "Once people see that small progress toward their goals, that becomes exciting and empowering. They'll escalate their commitment to achieve that goal."

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However, there's a disconnect between human brains' short-term wiring and the long-term nature of retirement savings vehicles. For most Americans, the most cost-effective, tax-efficient ways to save for retirement are with 401(k) accounts or IRAs, and they lose their cost effectiveness if savers use them as shorter-term savings accounts, Putney pointed out.

"Personal IRA accounts are tax deferred, but if you take the money out too early, there are penalties involved," she said. "They are really geared around long-term savings. It's the same with a 401(k) plan." So investors setting themselves short-term savings goals need to be clear that the money they use to meet those goals will be off limits until later in life.

It's not easy saving for a future off in the hazy distance. But if you use them well, short-term goals can help you focus.