Retirement planning: Would a photo help you save?

Retirement planning was easier for college students who could 'look' at themselves a few decades later, according to a study. Although retirement planning is hard for young people, retirement saving is easy because time is on their side. 

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    Baylor students on the field during a pregame ceremony where they run the length of the field before an NCAA college football game against Oklahoma last month in Waco, Texas. Retirement planning is not a top priority for many college students, but a study suggests they will save more if they can 'see' themselves in the future.
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Many Americans aren’t saving enough for retirement. Fortunately, a team of finance and marketing professors have figured out how to use time travel to improve your financial outlook. Well, sort of.

First, the numbers: We wrote last year that nearly half of the baby boomer generation could run out of money before they run out of time. A new academic study suggests it’s closer to two-thirds, and that the rest of us aren’t off the hook. At our current savings rates, “the percentage of households that would fall short of reaching their retirement goals had grown to 51 percent” since the financial crisis began.

Why don’t we save enough? The study, published recently in the Journal of Market Research (and available from one of the authors’ websites as a PDF) suggests it’s because we don’t care much about our future selves when we’re young.

Recommended: College grads: Top 5 financial mistakes – and how to avoid them

“To people estranged from their future selves, saving is like a choice between spending money today or giving it to a stranger years from now,” the study says. So what’s the solution? Simple: introduce us to our future selves.

Using fancy cameras and software, the researchers created virtual, photorealistic older versions of 50 college-age test subjects that could move and react in real-time. You can see example photos in the paper, which is called “Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self” – check out pages 26-27.

The idea was that people would be more motivated by a realistic simulation than vague worries about the distant future. And it worked.

In one of a series of tests, the students were given a hypothetical $1,000 to spend as they chose. Those who saw future selves put twice as much toward retirement (average of $172) as those who saw virtual versions of their current selves ($80).

How to save well

Most of us don’t have the advantage of talking to our future selves as motivation, but we have to find a way – life expectancy keeps going up, and the likelihood of my generation seeing Social Security checks seems to keep going down.

The good news is that time is on the side of the young. A 25-year-old who sets aside $12.50 a week – a meal out or a few coffees – and invests it with an 8-percent return will have more than $175,000 at 65, having put in just a total of $24,000 over four decades.

Of course, there’s a risk of not getting that 8-percent return (or even less) and doing so will require both knowledge and some degree of risk-taking. Check out our story What to Know Before You Invest in Stocks for some pointers, or consider talking to a financial planner.

But the first way to approach investments isn’t buying stocks. Step 1 is to join your employer’s retirement plan like a 401K. They handle the investing, you just decide what funds you’d like to invest in. (See Manage Your 401K in One Minute.) Some employers even offer matching contributions, which typically means you put in a dollar, they give you a free 50 cents. Just do it, then don’t undo it.

– Brandon Ballenger is a writer for Money Talks News, a consumer/personal finance TV news feature that airs in about 80 cities as well as around the Web. This column first appeared in Money Talk News.

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