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3 Ways to Trick Yourself Into Saving More

Morningstar's head of retirement research David Blanchett shares a few strategies for plumping up the nest egg.

My colleague Christine Benz talks a lot about bucket portfolios for retirees. Buckets are a form of mental accounting, where you divide your portfolio into subportfolios (or buckets) based on when you need the money. I've seen this approach work for retirees who were uncomfortable taking on a given level of risk when it was presented as a single portfolio but were fine when it was broken out across accounts (even though the total risk level was the same).

You can use mental accounting to help make better decisions across a variety of domains, and I recently had a personal experience with buckets when it comes to saving.

My wife, a veterinarian, recently started working again as an independent contractor after taking some time at home with our four young children. I'm always looking for efficient ways to save more for retirement, so I let her know that I'd like to create a solo 401(k), and that we'd likely save all of her earnings for the year in the solo 401(k). To be clear, we'd just be reallocating money to this account that we would use to pay down our still relatively hefty student loan debt--and all of our accounts are joint accounts. Still, I think my recommendation sounded to her like I was stealing her hard-earned salary! 

While my wife understood that this was a strategy to reduce our tax bill, the way I had proposed the savings decisions ("all her earnings") made it sound relatively cruel. With the benefit of hindsight, I could have phrased it better.

Her reaction, or something similar, is likely common and can help explain why many people are not saving enough for retirement today. If you're having trouble saving for retirement, here are some tactics that might make it a little less painful.

1. Save half your raises (or some other high percentage). Things are tight right now--I get it. When you receive a raise, though, don't spend it all. Let's say you make $100,000 and are saving 5% for retirement ($5,000); that's probably not nearly enough. If you get a 10% raise (in one year) and save half of it, you would double your retirement savings rate and still have an extra $5,000 to spend.

2. If you aren't motivated to save for retirement, focus on paying down debt, like credit cards, student loans, or even your mortgage. Retirement is not always easy to save for because it can be so far off in the future. Paying down debt might actually make more sense than saving for retirement, depending on the interest rate. So, if retirement doesn't do it for you, pick something else that does. Hopefully, when you get in the groove of paying off your debts, you can pivot and save some for retirement.

3. Visualize yourself in retirement. How much of your vision is fungible? That is, does your beach villa have to be 3,000 square feet? How would you feel instead about a hut on the beach in another country? Know yourself and use that knowledge to get a clear sense of what life in retirement might cost you. Then do some research. How much does that villa cost? Saving requires sacrifice, and sacrifice can be easier when you know what you're really saving for. What will you trade today (that is, live without) to get the retirement you want?

Realize that saving for retirement isn't fun or easy, but that you might be able to trick yourself into doing it--like hiding vegetables in a dish so you don't taste them. How you think about it can potentially make a big difference, too. Try to fall in love with your vision of retirement and it will spur you on to better decisions. Your future self (and your spouse) will thank you!

This information is provided for informational purposes only. Morningstar Investment Management LLC is a Registered Investment Advisor, subsidiary of Morningstar, Inc., and shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. Opinions expressed are as of the current date and are subject to change without notice.