The Psychological Trick to Supercharge Your Retirement Savings

by Jason Unger

Saving for retirement isn’t always easy.

It should be, but there’s so much of life that just gets in the way.

Bills pop up.

Jobs change.

Families start, and families change.

Emergencies happen.

For many people, life makes it difficult to worry about tomorrow when you’re so focused on today.

As we’ve talked about before, your behavior when it comes to money isn’t always rational. It can be emotional. Psychology plays a role.

That’s why we focus on removing you from your decision-making as much as possible.

If you want to retire, automate your retirement investments.

If you want to save for a new house, open a dedicated savings account and automatically put money into it.

Take your emotions and your decision-making out of the process as much as you can, and you’re likely to be in a better place than if you’re actively managing (no pun intended) what your money is doing.

The Trick to Supercharge Your Retirement Savings

Here’s a little trick that I used back when I worked at a large company to boost my retirement savings (I have my own business now, so it works a little differently).

I was contributing to my company’s 401(k) just enough to get the employer match; for me, it was 1/3 of my contribution up to 6%. Basically, if I contributed 6% of my salary, then the company would add an additional 2% on top of it.

It didn’t make a lot of sense at the time to contribute above that, since we were both saving for an upcoming move and maxing out our post-tax Roth IRAs.

Because my company’s 401(k) plan didn’t have a ton of low-cost index funds and I was assuming that I’d have a higher tax rate when I retired, focusing on the Roth IRA made more sense.

That changed when I received some great news.

Work was going well, and not only did I find out I was getting a promotion, but I was getting a nice pay raise as well.

It was exciting. Who doesn’t love to hear they’re appreciated, and get more money at the same time?

That’s when I did it.

Before the first paycheck with my higher salary, I called HR and told them I wanted to increase my 401(k) contribution to 10% of my salary (up from 6%).

What’s great about this trick — and yes, it’s a psychological trick — was that I didn’t feel like I was taking away from my paycheck. It didn’t hurt me psychologically to see less money in my bank account every two weeks.

I got my next paycheck, and because of the salary increase, I was still getting more money in my bank account. But I was also contributing more to my 401(k).

It felt like I got a pay raise (because I did) and it felt like I was contributing more to my retirement (because I was). It didn’t feel like I was sacrificing money now for money later.

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