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To be a retirement savings pro, act as if 'someday' is today

  • People who speak languages without a future tense tend to distinguish less between tomorrow and today — and save more money than English speakers.
  • The financial industry's relentless focus only on future rewards impoverishes savers' lives in the present, and works against human nature.
  • Today's retirement structure forces workers to auction off their services to the highest bidder.

Someday Came
Tim Maurer

While on vacation recently in the Abaco Islands, on the outer rim of the Bahamas, I found myself on an important mission: taking the golf cart to the local market to restock our dwindling supply of the necessary ingredients for piña coladas.

I was stopped in my tracks en route by a welcome sign announcing a new resident's beachside home. It read: "Someday Came."

The obvious implication is that these folks decided to act on their "Yeah, I'm gonna do that someday" daydreams.

But it raises many questions, right?

Who are these people? What's their story, financial and otherwise? Did they hammer this sign into the sand after scrimping and saving, finally realizing their retirement dream following a lifetime of toil? Or are they the professionally mobile couple with young kids you see on HGTV's "Caribbean Life," who decided they'd just had enough of the rat race?

I'm glad I don't have the answers, because the big question for the rest of us is worthy of consideration:

How do we define our "someday"? How do you define yours?

There's an answer that the financial services industry (and the U.S. government) has prescribed for you. That's the one where you work your butt off, make as much money as you can, save as much as you can and then glide into a distant, worry-free utopia called "retirement."

Well, the baby boomers were the first generation to try this, and statistics suggest the "traditional retirement" experiment has been an abominable failure.

Why? Hyperbolic discounting.

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It's a term used primarily in the field of behavioral finance, and it's defined as "the tendency for people to increasingly choose a smaller/sooner reward over a larger/later reward, as the delay occurs sooner rather than later in time."

Humans, as it turns out, aren't very good at delaying gratification. I believe such discounting is even further compounded in saving for retirement, because the goal involves hypothetical numbers and an unknown future while our present temptations promise immediate satisfaction.

Now, the benefits of long-term, compounded investing cannot — must not — be ignored or abandoned, if only because the reality of recreating an income in retirement demands a both concerted and consistent effort. But is it possible that we can do a better job of saving for a seemingly distant future by introducing the perceived satisfaction of that future existence into the present?

Yes, I believe so, and here are three ways we might work to that end:

1. Change the way we talk about retirement. In a laudable effort to simplify retirement goal-setting, we've reduced it to a single number — the number" that we need to have saved at a point in the future to sufficiently care for our needs. But, especially for someone early in their retirement savings journey, a number such as $2 million, $3 million or $5 million or more seems arbitrary and out of reach. It's too far out there in the future to effectively value today.

However, we've learned that one of the reasons some cultures have a tendency to do a better job saving than Americans is because they don't have that language for the future. "Languages that don't have a future tense strongly correlate with higher savings," said behavioral economist Keith Chen.

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Indeed, "futureless language" speakers had 25 percent more saved for retirement, as found in one extensive study. How you speak apparently changes how you think and act.

Can we, therefore, conclude that by changing the way we talk about retirement savings, we can change people's saving habits? What if instead of motivating people to save toward some huge, intimidating future number, we brought it more into the present?

For example: Based on your current investment allocation and savings rate, it is estimated that you'll be able to recreate [65 percent] of your present salary at age [70].

2. Don't race to retirement. When, with the introduction of Social Security, the United States first enshrined "retirement age" as 65, the average life expectancy was 58 for men and 62 for women. Today, a man reaching 65 is expected to live until 84.3; a woman, 86.6.

The math simply doesn't work. And our attitudes toward work necessarily impact our view of and plans for retirement.

If we view work solely as a mechanism through which we attempt to make the most money we can so we're able to stop working the soonest, it puts a great deal of pressure on us to auction our services to the highest bidder, regardless of how much or little non-financial reward we derive from it. And then, because we're in a rush to retire, if — and, for the majority of baby boomers, when — we approach retirement age with insufficient savings, it produces a sense of near desperation.

"The financial services community's almost singular focus on deferring gratification for the future has made us largely harbingers of unwelcome news."

But if we enjoy our work, we can reasonably delay retirement and responsibly put less of a burden on our current savings, which reduces the stress of work and helps us better fund enjoyment of the present.

3. Bring more someday to today. The financial services community's almost singular focus on deferring gratification for the future has made us largely harbingers of unwelcome news. We must find a way to bring value to the present and near future, recognizing that it may also help foster the resolve necessary for longer-term planning. Of course, this is a journey anyone can, and likely should, undertake.

We can ask deeper questions to uncover motivations and goals that aren't dollar-dependent. We can plan for periodic sabbaticals to recharge and reengineer. We can empower ourselves and others through thoughtful career planning, or strategizing a geographic move. Heck, for starters we can encourage longer vacations that make work more palatable.

We can develop more creative financial and retirement plans that, while rooted in reality, are designed to tap into the satisfaction of someday today.

— By Tim Maurer, director of personal finance at Buckingham and The BAM Alliance.

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