Shy and retiring
The many reasons why so many respondents have not started a retirement savings fund will likely include those motivated by both financial and behavioural concerns.
Two thinking traps spring to mind when we look at the behavioural motivations around delaying saving for retirement. The first is hyperbolic discounting (or our tendency to consider the consequences of choices less the more distantly they fall in the future). The second is procrastination (or our tendency to put off unpleasant tasks).
I want it now
Our retirement is a long way off – it’s difficult to reduce near term pleasures, such as overseas holidays, and increase saving to provide for something that is likely to be many years in the future. Even in the shorter term, people often prefer immediate to future gains. eZonomics ran a well-known test on our poll last year, asking if respondents would rather get €50 now or €55 in a year. The majority wanted the quick win. The lesson of hyperbolic discounting is to remind savers to think about the future in the same way as they think about the present. Imagine yourself in retirement to increase motivation to save.
The costs of doing nothing
Procrastination is a recognised problem with saving and investing, identified in a United Kingdom Financial Services Authority research paper. But putting off starting to save and invest for retirement can carry big costs. When deciding how to save and invest, people can forget to factor in the costs of doing nothing. Automatic enrolment into company or Government pension schemes is one way to combat procrastination. Individuals can also encourage themselves to act by setting deadlines and goals or scheduling time to work on retirement planning. The eZonomics video The cost of procrastination gives some tips to help get avoid this problem.