”Overcome” the present and save for retirement


Can you imagine yourself at 65 or 70? If you project yourself over time, you probably think of yourself practically as "a stranger". This is a consequence of the present bias, for which we all have a tendency and which leads us to underestimate future results and to prefer the immediacy of the present moment.

A simple example of the present bias could be your own answer to this question: what would you prefer: to get 100 euros today or 110 euros within one year? Very probably, you would choose the first option although, if you stop to think about it, the second one implies a remuneration of ...10% per year!

Returning to "our retirement years", when the time comes, we will probably face a drop in income that will need to be offset with some savings to be able to maintain our quality of life. The increase in longevity makes it advisable to save, as far as possible, for this important –and perhaps long– stage of our life.

There may still be plenty of time for this to happen. The idea of retirement may still be far away for us! But it is important to keep it in mind; it is a reality that will arrive, sooner or later, and we have to be prepared for it! 

Faced with the present bias, we propose these three strategies to "use your head" in your long-term savings decisions:

  • Establish a fixed percentage of your monthly income to allocate to your retirement savings. For example, if you set up an automatic transfer to set aside a small amount from your payslip every month, you can gradually build up a retirement fund, almost without realising.  
  • Use this simulatorAbre en ventana nueva to calculate the income you will be able to enjoy in your retirement years if you start saving today.  
  • Project yourself into the future and visualise yourself a few years older (these days it is easy to find applications for it!). Surely seeing your own image aged will help you overcome the present bias. 

Reference: Hershfield, H.E.; D.G. Goldstein; W.F. Sharpe; J. Fox; L. Yeakel’s; L.L. Carstensen; and J.N. Bailenson (2011) Increasing saving behaviour through age-progressed renderings of the future self, Journal of Marketing Research, 48, Special Interdisciplinary Issue 2011: Consumer Financial Decision Making (2011):  S23-S37

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