To Save More, Imagine Your Retirement

Imagine this: You’re retired and learning Italian for a trip to Rome, or you’re running along the beach as you train for your first half-marathon.

Whatever your life will look like in retirement, envisioning it beforehand could spur you to save nearly one-third more than you would otherwise, says a new report by in­vestment manager Capital Group, which surveyed 1,200 millennials, Gen Xers and baby boomers.

Half of those polled were first given 15 questions to help them imagine the activities they would do in their sixties, seventies and beyond, and then they were asked how much they should save from each paycheck for retirement. The rest were asked how much to save first and then told to imagine retirement.

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Those who pictured their retirement first said they should save 21.2% of each paycheck, on average. The other group said they should save 16.2%. When people imagine all the positive things they can do in retirement—traveling, visiting grandkids—they are motivated to save more for those goals, explains Heather Lord, head of strategy and innovation at Capital Group. This finding may help the financial industry develop ways to encourage saving that are more effective than the usual nudges that play on workers’ worries and guilt, Capital Group says.

Start by imagining what kind of life you’d like to retire to, instead of looking at retirement as an escape from the things you hate about work, says Steve Vernon, research scholar at the Stan­ford Center on Longevity. Think beyond the “vacation” aspects of retirement, such as traveling or playing golf, that might only add up to several weeks in a year. Instead, consider what you can do that will provide meaning and the social contacts that work typically provides, he says. Consider whether you’ll downsize or work part-time—all of which can have a significant impact on your finances.

Once you know what you want to do in retirement, the next step is to see if you’ll be able to afford to support that vision. Invest as much as possible in tax-advantaged accounts. In 2019, you can sock away up to $19,000 in a 401(k) or similar plan, or $25,000 if you’re 50 or older. Use an online calculator such as the one at troweprice.com/ric to check your progress.