When you are in your 20s, 30s or even 40s, retirement can seem like a distant reality. That makes it hard to save for retirement. But, in reality, experts suggest you should save 10%, 20% or even 30% of your monthly income toward retirement.
Behavioral economists say the biggest obstacle for younger people to save for retirement is a phenomenon called “psychological distance.” That simply means how far away something feels in our mind’s eye.
The greater the psychological distance, the less importance we place on things. What happens today feels more important than what will happen in 20 or 30 years. So people spend today and put off saving until next year. But, when it rolls around to next year, many people do the same.
Don’t make mistakes now that your “future self” will regret.
What’s the solution?
Start connecting to your “future self.”
Fascinating research by Dr. Hal Hershfield and his colleagues at Stanford University revealed that people who feel more connected to their future self save more and accumulate greater assets than those who are disconnected from their future self.
The researchers found that when people interacted with an age-progressed avatar of themselves, they made more future-oriented financial choices afterward.
Age-progress a picture of yourself right now. There are free apps and online tools to do this with a photo and you can imagine what it will feel like to be elderly. Consider what you want your life to be like then. What do you want your bank account to look like at that age? Imagine what it would feel like to have a lot of money or a little.
You can also use behavioral hacks recommended in research by Nobel Laureate Richard Thaler of the University of Chicago. His advice is “Save More Later.”
What that means is commit now to saving more when you get your raise next year. This minimizes the influence of loss aversion.
Decide now to increase your monthly contribution to your savings, retirement or tangible asset investments when that salary increase kicks in. By committing to save your raise rather than your current salary, it lessens the pain we feel in setting that money aside.
What else is important for successful retirement? Regular investments in an asset that will protect your purchasing power.
Investing regularly in physical gold is a great strategy to diversify your monthly contributions to an employer sponsored 401k plan or an individual IRA.
Prices when you retire will be much higher than they are today.
It is easy to forget about that important fact when you determine how much you need to save for retirement.
For example, if you want to retire in 25 years, and live a lifestyle that would cost $50,000 today, then that same lifestyle will cost $87,500 in 25 years, if we have 3% yearly inflation.
Just imagine what could happen if inflation jumps up to 12% like we saw in the 1970s. That same $50,000 lifestyle would cost $150,000 a year with 12% inflation.
You need to think about prices being three, four or more times as high as today.
Save early. Save often. Invest and diversify. Gold acts as an insurance policy, a hedge against equity market declines and a vehicle to protect and grow wealth. By owning physical gold, an investor is diversified which results in a better performing portfolio.
Get started today. Your future self will thank you. You can even add precious metals to a self-directed IRA account. Learn how here.