How to commit to investing for retirement

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One of the ways to bridge the gap between our present and future selves is to imagine what our future self looks like. (Image: Supplied)
One of the ways to bridge the gap between our present and future selves is to imagine what our future self looks like. (Image: Supplied)

If you struggle to stay motivated to invest for retirement, consider tapping into the psychological tool of “temptation bundling”, which combines two types of activities: one that is beneficial, but that you often put off actioning because it’s not much fun, and one you enjoy doing, but that is not the most productive use of your time or resources.

This can be a powerful tool to generate willpower, which could ultimately be harnessed to alleviate some of the psychological pain that we associate with the things we perceive to be a sacrifice. Investing for retirement is a good case in point.

Most of us accept that we need to make provision for a future income during our working years to retire later on in life. Yet simply understanding the why does little to ease the psychological tension that arises from having to make trade-offs today for the sake of tomorrow.

Research suggests that our brains also tend to view our present and future selves as two different people, which makes a sacrifice like investing for retirement difficult to rationalise. This disconnect between the two versions of the self is the root cause of the pain we feel.

Using rewards to create smart investment habits

By linking a reward to a difficult task, what you are really doing is reframing your perception of a task into something you can look forward to, instead of something you'd rather avoid.

Take meeting with a financial adviser as an example. For some investors, their annual check-in with their financial adviser can be an anxiety-inducing exercise. Therefore, instead of delaying this beneficial activity, why not consider making the engagement less formal by meeting at a restaurant or your favourite leisure spot (the reward) to plan for your financial future (the task that “ought to” be done).

The key to effectively applying temptation-bundling to achieving long-term financial goals is finding a way to include rewards in the process so that it becomes an instantly gratifying experience and a foundation from which good habits can be formed.

Bridging the divide

One of the ways to bridge the gap between our present and future selves is to imagine what our future self looks like. This enables us to start building an emotional connection and identifying with this “stranger”. The more we can connect our present selves with our future selves and goals, the more likely it is that we will align our present-day behaviours and decision-making processes with those goals. 

Reframing perceptions

If we want to succeed in changing our behaviour and attitudes towards long-term investing, we need to psychologically reframe the idea of saving into something that minimises the perceived pain associated with not succumbing to our desire to spend everything on ourselves now.

It is naturally overwhelming to think of the large amount we will ultimately need to see us through retirement. However, it is typically less painful to tackle a new goal by starting small. This could mean supplementing your pension fund benefit provided by your employer with monthly contributions to a retirement annuity, or setting up a monthly debit order to a unit trust – suitable for most of your investment goals. Starting with a small contribution and gradually increasing it over time can make it easier to commit to automatic, annual debit order increases. Beyond these powerful behavioural interventions, consider seeing an independent financial adviser who can help you overcome biases and encourage you to remain committed to your financial goals.

This post and content is sponsored, written and provided by Allan Gray.

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