Are You Hardwired to Save for Your Retirement?

Apr 22, 2022

I’ve been saving for my retirement since I was 23 years old – since 1977, to be exact. My father-in-law was, at that time, a Chartered Accountant with his own successful business.

When I married his son that year, he sat us both down and talked to us about the future and how we should begin to plan for it now. The marriage only lasted 10 years, but the fatherly financial advice I got from the elder Mr. Dawson has lasted a lifetime, right into my retirement years.

Was I Hardwired?

Even as a young woman pre-marriage, I was a good saver. Coming from little money, I learned the value of a dollar from a young age and knew that saving paid off. In hindsight, I ask myself: Was I already ‘hardwired’ to save because of my childhood and young adulthood experiences? Was it already a part of my DNA, or was it just plain common sense?

A little bit of each I think, however I am probably wrong about the hardwired bit. Apparently being ‘hardwired to save for retirement’ is unusual for most of us.

The Back Story

According to an article on this subject written for Global News by Erica Alini, “Our brains are wired to value the present over the future, something researchers have dubbed “temporal discounting.”

Translated, that means we’re prone to inertia and are effort averse. That inertia extends to tasks both large and small – including taking the trouble, for instance, to sign up for a company pension plan.

Sound familiar? Well, Ms. Alini has some solutions to offer, all sensible and, more to the point, all actionable.

Does Free Money Interest You?

Ms. Alini has come up with two strategies we can employ to help us get started:

Strategy 1:

Imagine you start saving $500 a month at age 30 and stick to that until you retire at 65. At 4% per year, that delivers around $450,000.

Strategy 2:

Let’s say inertia kicks in and you only start setting aside $500 at age 35. At 65 you’d have around $343,000 – more than $100,000 less.

Either way, as Ms. Alini reports, “those investment gains are free money” – a powerful reality that our brains understand and can respond to.

And Ms. Alini makes a further point. Using the book Dollars and Sense: How We Misthink Money and How to Spend Smarter as her inspiration, she points out that the case for starting to save now is even more compelling when you have a workplace retirement plan with top-ups from your employer.

As she points out: “Unlike investment returns, those corporate matching contributions are guaranteed.”

How to Develop Age-Based Retirement Goals

Ms. Alini cites the example of Bridget Casey, who jump-started her retirement strategy just after high school. So dedicated to this strategy was Ms. Casey, she became a money expert and founded a company called Money After Graduation.

Her counterintuitive approach was to look at a savings strategy with an end-goal of age 30. Ms. Casey proved that she could accumulate the equivalent of her annual salary in this timeframe. “Setting on a fixed number that just seems reasonable and striving to meet that can keep you on track,” she was quoted as saying.

In effect, Ms. Casey demonstrated that breaking down your savings goals into bite-sized chunks can help solve the procrastination problem – and, it will make the task “psychologically easier”.

It’s Never Too Late

Finally, Ms. Alini quotes the example of financial planner Shannon Lee Simmons, who believes that it’s never too late to start saving for retirement.

She says: “I have lots of clients who started saving for retirement in their 50s.” As Ms. Simmons sees it, “anything that improves your net worth is a form of long-term retirement saving.”

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