4 Big Roadblocks towards Saving for Retirement

One area that deserves your attention is to ensure that you have a well thought out plan for your retirement. Whilst still working, you need to accumulate funds to generate future retirement income. We have all been made aware that our EPF savings may not be sufficient to ensure adequate income replacement for our retirement. This retirement savings gap can only be addressed by taking action now to voluntarily save more through a retirement scheme such as the Private Retirement Scheme (PRS) so that when the time finally arrives for our retirement, we will look forward to enjoying those years.

When it comes to taking action to voluntarily save more for retirement, you need motivation and commitment to sustain the actions required to accomplish the desired retirement objectives. Behavioural economists have identified behavioural traits that have often acted together to impede actions that are required to sustain voluntary retirement saving behaviour.

Roadblock 1 Inertia

One key observable trait is inertia which poses a powerful resistance to change current spending behaviour for future retirement savings. This behavioural trait stops one from taking action to change consumption behaviour which has become a spending habit to support current lifestyle.

Roadblock 2 Lack of self-control

Then, there’s the issue of self-control, or the lack thereof. Lack of self-control to restrain spending has resulted in many living beyond their means and borrowing a lifestyle which they certainly cannot afford. This results in overspending and under saving, which often leads to excuses such as “I cannot afford to save more for retirement”, leaving no room for retirement savings.

Roadblock 3 Present bias

Those who adopt a present bias mentality have the tendency to over-value present consumption at the expense of long-term objectives and plans. Essentially, this is the “live for today and let tomorrow take care of itself” approach to living.

Roadblock 4 Procrastination

Meanwhile procrastination, the behaviour of putting off or deferring an action, has a detrimental time and compounding effect as the longer you put off the decision to save for retirement; the more costly it will be to save later. A procrastinator creates the excuse for not taking action now by pushing it to tomorrow, the following month or year.

The combination of the above behavioral forces often works against us and impede our desire to take action in addressing the need to save more for our retirement.  The first step in overcoming these behavioral challenges is to be aware of which forces are at work and to take steps in overcoming them to prevent them acting against us. Behavioral finance researchers have found a few following actions to help individuals overcome behavioral biases to save more voluntarily for their retirement.

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