3 Steps to Overcome Behavioural Challenges in Saving for Retirement

People often struggle to commit towards retirement savings as it is seen as sacrificing current consumption for the future. To change this perception, we need to reframe retirement savings as future retirement spending, to balance the mental perspective of current and future spending.  When you know that your savings are for future spending, this takes care of any present biases which are competing for the same money.

1^st Step  Start your PRS account

Taking the first step to open your PRS account is the hardest as inertia behaviour steps in to resist the change in spending behaviour for retirement savings. The only way to overcome this resistance is to start your PRS account now. Having started your PRS account, you need to implement an affordable regular monthly contribution plan that makes it more acceptable and affordable mentally rather than contributing on a lump sum annual basis.

2^nd Step  Pay yourself first

A simple and powerful behaviour intervention which you can implement immediately to regain control of your spending habits is to pay yourself first. Most of us use our monthly paycheque to meet statutory deductions, loan and credit obligations and support our lifestyle, and save from the remaining balance (if any). You need to reverse the order of payments by paying yourself first and setting aside a minimum 10% of monthly paycheque into your PRS account will ensure that you contribute to your retirement savings first which then allows you to spend the remaining 90% of your paycheque.  Saving for retirement first empowers you to take control of your current and future spending behaviour.

The majority of Malaysians delay or defer PRS contributions right to the year end to take advantage of the tax incentive. As you know towards the year end, there are other consumption distractions and temptations, creating a choice conflict situation which may result in choosing current consumption over retirement savings. Implementing a regular monthly PRS contribution removes the potential year end saving-spending dilemma, without having to make lump sum contributions.

3^rd Step  Automate your PRS contributions on a monthly basis

One of the best ways of overcoming present bias, self-control, inertia and procrastinating behaviours is to automate your PRS contributions on a regular monthly basis so that saving for retirement becomes an “unconscious contribution” into your PRS account. Automating your PRS contributions through e-banking by setting it up as a monthly recurring payment to your PRS account will ensure that PRS contributions are taken care of first. This will prevent any lapses in missing out on your monthly contributions, which will result in a shortfall in your retirement savings.

When it comes to voluntary savings for retirement, you will need a regularised discipline process to overcome all behavioural biases and influences. So start saving more for your retirement with PRS and automate your contributions monthly to ensure that you stay committed to saving for your retirement.

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