Tony Robbins' No. 1 Solution to Saving Money for Retirement
Yet, given the average monthly Social Security paycheck is only $2,002.39 (per Kiplinger), Americans are asking for trouble. $2,000 dollars a month doesn't even cover the rent on a one-bedroom apartment in many places.
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Robbins claimed people fail to save for retirement because they psychologically view saving money for some unknowable time in the future as a sacrifice in the present they are unable to make. Simply put, the future does not feel real. In the mind of most Americans, who can plan for the phantom future when medical debt and student loans need to be paid off?
In his book, 'MONEY Master the Game: 7 Simple Steps to Financial Freedom,' Robbins wrote, 'the bottom line is, if we feel like we're losing something, we avoid it; we won't do it. That's why so many people don't save and invest. Saving sounds like you're giving something up, you're losing something today. But you're not. It's giving yourself a gift today of peace of mind, of certainty or the large fortune in your future.'
In the wake of recent retirement warnings, Robbins proposed a solution to saving money for retirement.
This is why, according to The Street, Robbins advocates for the 'Save More Tomorrow' plan, originally the brainchild of economists Richard Thaler and Shlomo Benartzi.
In this model, employees are not asked to make any major cuts to their current spending. Instead, they start out saving negligible amounts of their income — even just 3% — and then increase the percentage at some point in the future ('tomorrow') when their income increases. They repeat this process of saving larger and larger percentages each and every time they get a pay raise until, before they know it, they have accrued substantial retirement savings.
According to Thaler and Benartzi, people don't feel this type of saving as a loss because they can't miss what they never had.
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Thaler and Benartzi tested the 'Save More Tomorrow' plan on employees at a company in the Midwest who stated they could not afford to save any of their paycheck.
'After just five years, those employees who thought they couldn't afford to save were setting aside just under a whopping 14% of their paychecks,' stated Robbins. 'And 65% of them were actually saving an average of 19% of their salaries.'
Saving for retirement can feel like a large, overwhelming task that can cause pain in the present — a pain which most seek to avoid. But, by simply reframing the task and transferring the bulk of the 'pain' to a later date (when income increases), participants became willing to pull the trigger… and didn't feel that pain.
The 'Save More Tomorrow' plan can serve as an excellent psychological hack if you're prone to procrastinating. It actively tricks you into planning and saving for retirement which will help you establish a more secure financial future.
Additionally, you'll wind up benefitting from compound interest earned over time on retirement accounts like 401(k)s and IRAs. As the saying goes, 'wealth is money and time.' And a few dollars saved today could means thousands of dollars secured down the line.
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This article originally appeared on GOBankingRates.com: Tony Robbins' No. 1 Solution to Saving Money for Retirement
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