Expert Advice

Catching Up For Retirement

Rebalance IRA Investment Committee member Burt Malkiel on how even less-than-prudent savers can still enjoy a comfortable nest egg.

Burt Malkiel: You know, it’s not easy to save. It’s much easier to spend now. But in many cases, it may be tough, but that’s the only way that people can catch up. Now, the behavioral colleagues of mine have developed, I think, some wonderful methods for doing it. One would be the following: Make yourself save. Before you get a penny out of your paycheck, make sure that they take out the necessary amount for your IRA and for your 401(k). Because money you don’t see, you’re not going to — you’re not as likely to spend.

So if you want, go and trick yourself into doing it. And if you failed to save earlier, trick yourself by having more money come out before you see anything. The other thing that, again, some of my behavioral colleagues have invented, is something called a “save more tomorrow” plan. And let’s say that you’re in your fifties, you haven’t saved enough, but you’re barely making ends meet. You’re just at the end of the pay period, you’ve spent all your money. I can’t save anymore. We just can’t — we’re spending every penny that I earn.

Okay, do the following with your employer. At my next raise, maybe it’s a 2%, 3%, 4% raise, let me have only 2 percentage points of the 4% raise and take the other 2% and put it into saving.

In other words, save more tomorrow, and you’ll still get a little more in your paycheck for current expenses. And this has worked extremely well in many of the companies that have tried it. And it’s a wonderful technique that individuals can use themselves if they simply can’t save another dollar today. Okay, put yourself on automatic pilot that you’ll save it tomorrow.