A friend approached me the other day to say that she'd yet to begin investing toward her retirement. She's married and in her 40s with a steady job. She lives frugally and has been saving her money in a bank account for her entire adult life. "I know I should be doing more, but I just haven't dedicated time to this," she confessed.
I can't really blame her for not being enthusiastic to save for a milestone so far in the future. We have plenty on our financial plates already, from navigating the increased cost of living to paying down debt and saving for a rainy day. Plus, it's hard to get motivated to achieve a goal that feels so abstract.
But thanks to science and technology, some of the "work" to get rocking and rolling with retirement has never been simpler. Here are four ways to set yourself up for retirement success with fewer tears… and maybe even some fun!
OK, that may be overstating things, but I promise these steps can go a long way.
Where to invest? Let the robots decide
One speed bump to saving for retirement is not feeling ready to select your investments. The idea of saving in a 401(k) account can be intimidating because we may feel pressure to cherry-pick the right stocks and bonds and mutual funds. While that was the approach 15 years ago (I remember randomly picking my investment funds in the early 2000s), it's no longer necessary -- or even recommended.
Whether you're starting a 401(k) portfolio through your company's retirement plan or an Individual Retirement Account through an online brokerage, you could let technology drive your investments. When you set up your account, you'll be asked questions related to your retirement goals, risk tolerance and retirement age. Seconds later, you'll have a diversified, low-fee selection of funds based on your answers. So-called robo-advisors like Betterment and Ellevest can do this for you, too -- costing only a fraction of what professional planners charge.
What once took me an entire evening after work, hunched over my desk, typing mutual fund acronyms into Google to check for ratings, can now be handled by smarter, data-driven services that craft a well-suited, personalized portfolio.
This technology is so smart that many financial planners have begun to rely on robo-advisors to handle investment selections for clients, as well.
Bank on free money to increase your retirement savings
A big question of many retirement discussions is "how much is enough" to save? While everybody's number is going to be different based on their retirement goals, the rule of thumb is to save between 10% and 15% of your paycheck into a retirement savings account like a 401(k) or IRA.
Or, if your company offers to match your contributions to your employer-sponsored retirement plan, take advantage of that. Don't pass up free money that can go toward your retirement. With a typical matching program, your employer might contribute 50 cents for every dollar you save in your retirement plan, up to 6% of your salary.
Adopt a 'save more tomorrow' plan to build your retirement fund
If 10% or 15% of your salary is too much right now, commit to saving more toward your retirement plan with every future uptick in salary.
Behavioral economists Richard Thaler and Shlomo Benartzi concluded that this simple hack -- which increasingly is becoming part of many workplace retirement plans -- leads to more money for retirement. Their study found that savings rates for the average "Save More Tomorrow" program participant jumped from 3.5% to close to 14% over roughly three years.
Here's how it works: You commit to increasing your savings rate in the future. Then with every pay bump, these increases happen automatically through your retirement plan sponsor at work. Once you're enrolled, you're in the program unless you opt out. "This makes good use of inertia," Benartzi writes on his website.
To opt in, reach out to your workplace retirement program. There may even be an easy "on switch" you can find on your retirement account's online page.
To plan now for retirement, look at 'old you'
An image of you with a few more wrinkles and gray hairs is not just worthy of a share on Instagram. Science suggests that looking at "age progressed images" of ourselves can be a powerful hack for caring more about our future self and investing more toward retirement.
In a 2020 Stanford University study, researchers found that college students who viewed age-progressed photos of themselves were more likely to allocate more toward a pretend savings account. They also expressed higher confidence on a financial literacy exam and more interest in attending seminars on retirement and investing.
Why does it work? In the abstract, researchers wrote: "Part of the challenge young people face when preparing for lifelong financial security is visualizing the far-off future. Age-progression technology has been shown to motivate young people to save for retirement." In other words, seeing is believing… and is motivation to save.
And of course, there's an app for all that. To get a sense of your future self you can use FaceApp, Oldify and AgingBooth.