Will you run out of money before you die?

After retirement you may live on your savings for decades.

Yet two-thirds of baby boomers don’t have enough savings to continue their pre-retirement standard of living — which means you downsize or go broke.

Attention eye-rolling 20 somethings: it’s easy to say “pfff, the baby boomers screwed everything up, I’m going to do better” — and okay great, Pavlok believes in you — but isn’t it better to stack the odds in your favour?

And saving IS hard because we value immediate gains higher than those in the future.

There are two well known methods to countering the bias of valuing “money now” higher.

1. Precommitment is when you enact constraints in the present to limit undesirable behaviors in the future. e.g., asking your employer to deposit 10% of your paycheque in a separate savings account.
2. Future-Boosting is increasing the expected enjoyment of future spending by directing your imagination to future uses for that money. This is why financial investment commercials show you pictures of happy old-people on vacation.

But a 2011 study found a third route that can make a massive impact.

Researchers from leading universities (NYU, Stanford, etc.) proposed that by strengthening the connection between your present and future selves you will save more for the future.

Here’s how they did it.

20 men and 22 women in their early twenties were randomly assigned to two groups: current self or future self.

Each participant was then shown a Retirement Allocation Slider with a 3D avatar of that participant matched to their group.

Participants in the Current Group would see their avatar become happy as they allocated more resources to now, and sad when they allocated resources to the future.

Participants in the Future Group saw the opposite — more resources in the future led to a happier avatar.

The results were inline with predictions — participants in the Future Self Group allocated a significantly higher percentage of pay to retirement (M = 6.76%, SD = 1.68%) than the Current Self Group (M = 5.20%, SD = 2.35%).

The researchers concluded “although the effect size for this result is medium, the difference between conditions of 1.56% is practically quite significant.”

FYI 1.56% invested annually, can be worth $175,000+ by the time you retire.

Now here is a brain-hack you can use…

Next time you get paid, stop thinking about how spending it will bring you happiness now, and instead picture your future self frowning — research shows you will save a little more to help future-you out.