- In general, we have difficulty saving for retirement because we prefer to spend and consume now vs. later.
- Overall, we don’t like change, and tend to put off complicated decisions until tomorrow—like how much we should save or invest.
- The key to overcoming many of these roadblocks is gaining perspective and implementing a sound long-term financial plan and investment strategy.
- Are you doing everything you can to have the retirement you want? Talk to your UBS Financial Advisor.
While sound financial planning can help improve the likelihood of a successful retirement, there are many common mental roadblocks that keep us from saving like we should, investing prudently toward our goals and spending in ways that ultimately will make us happy.
CIO Americas, Wealth Management (CIO) offers insights into these psychological roadblocks—and how to overcome them—in its latest edition of: Modern Retirement Monthly: Three common mistakes in retirement planning .
The lessons learned from the three common mistakes include:
- Procrastination is the enemy
- Too much and too little engagement can cost you
- Frugality can ruin your retirement
First, recognize the behaviors
We all want to save as much as we can, but research shows many of us have difficulty saving for retirement because we prefer our consumption in the immediate present rather than the future. In other words, we tend to satisfy more of our needs today and delay taking care of our future selves.
Also, according to the CIO report, humans generally don’t like change. We tend to put things off for tomorrow especially if they involve complicated decisions, such as how much to save and what to invest in. What’s more, we’re sensitive to immediate losses. Seeing a paycheck shrink today (even if it’s to improve how much we can spend tomorrow) can cause a negative reaction and prevent us from saving.
To help overcome these mental roadblocks, CIO suggests gaining some perspective. If you think about it, delaying saving can result in loss of the compounding effect. For example, if you started saving $5,000 per year at age 35 vs. age 25, given a 4.5% rate of return, you would have 43% less by the time you reached age 65—a difference of $240,000.
Then, think strategically
To avoid the temptation of trying to beat the markets, it’s important to think strategically. In fact, one study from Brad Barber and Terrance Odean found that, on average, households turned over 75% of their equity portfolios annually and underperformed by 1.5% each year by trying to chase performance. Rather, CIO recommends sticking to a long-term investment strategy based on your ultimate financial goals.
CIO outlines an effective wealth management approach through a framework driven by three key strategies in its report: Liquidity, Longevity, Legacy: A purpose-driven approach to wealth management . Organizing, and thinking about, wealth according to these three strategies can help you clearly see where your money is and why, giving you the confidence to pursue the financial future you envision.
Are you doing all you can to have the retirement you want? Together we can find an answer. Connect with your UBS Financial Advisor or find one.