My Biggest Retirement Mistake: I Didn’t Follow My Own Advice

It’s even harder to believe what happens after 30 or 40 years of compounding. When I was 25, I couldn’t imagine that the $800 I cashed out from my retirement plan would have been worth more than $24,000 by now if I had just left it invested it in my retirement plan’s S&P 500 index fund.

Indeed, the entire concept of retirement seems unreal to us in our 20s and 30s. Research by Hal Hershfield, a professor at UCLA’s Anderson School of Management, shows that we don’t see the future selves we are saving for as us — our brains see that future self as a stranger. That makes it even harder to deny ourselves something we want right now, right in front of us. Who wants to give their money to a total stranger instead?

‘I had to get out of my own way’

Understanding that I was a walking, talking, textbook case of so many behavioral economics factors was huge. I developed several financial hacks and rules for myself — some borrowed from research I and others were doing and some that I figured out on my own.

The rules basically boil down to three things.

First, I had to get out of my own way. I had to create guardrails around my financial habits and make fewer decisions about what to do with my money, because I made the “wrong” decision more often than I liked.

Second, I needed to figure out a way to make the decisions I did make more tangible, to connect them to some benefit other than doing or acquiring something I wanted right then.

Finally — and this is still very much a work in progress for me — I needed to learn how to say no to myself, and to live with the discomfort I feel when I do.

One key hack is to automate your saving, as much as you can. This makes saving relatively painless, since you don’t have to actively decide to save (and won’t stress over not saving, or not doing it the right way).

Many companies with 401(k) plans do this when you start working for them, enrolling you automatically and annually increasing your saving rate, unless you opt out. If you don’t have access to a workplace plan, you can set up automatic contributions to an IRA or investment account, timed to coincide with when you get paid.

It also helps to automate your investments. Again, 401(k) plans often do this by enrolling participants in a target date fund, which automatically rebalances your investments as you age (for example, moving money from stocks to bonds to reduce risk), based on your expected retirement date.

With a target date fund, you don’t get caught in a cycle of greed and fear that can warp investment decisions. A 2021 Morningstar study found that over the previous decade, individual investors earned 1.7 percentage points less in returns per year, on average, than the funds they invested in, because individuals had a tendency to buy when it felt safe (in a bull market) and sell when it felt scary (in a bear market).

Automating your investments, whether it’s through a particular type of fund or by offloading the job to a financial adviser, helps keep you on track during periods of market volatility. Remember, markets don’t go up all the time, but they do go up over time. I ended up moving all our personal savings into the strategies I managed at work and loved the mental freedom that gave me.

How many windows?

Another trick I learned is to make the trade-off between what we are saving for and our current spending more tangible.

For example, my husband and I are serial house remodelers, which can take a huge bite out of retirement savings. Yes, our house is worth more than it would have been without the renovations, but that money is locked up in the house until we decide to sell it.

After years of borrowing money to finance projects, we finally decided that we had to save up ahead of each project. That got our month-to-month spending under control. The most helpful trick? When I was tempted to buy something for myself, I translated the cost into something on the renovation list. Our house, a Victorian built in 1906, had 56 original windows, so for a while I compared everything to the cost of replacing them. A new suit for work? That’s half a window!

The last big thing I’ve been working on is living with the discomfort I feel when I want something and can’t have it. You’d think that after 60 years on this planet I would have gotten my arms around this one, but it’s still excruciating for me, whether it’s turning down a second helping of dessert or passing on a new pair of shoes that I don’t need but oh, they fit so perfectly.

A friend gave me a helpful way to frame this: Think about the discomfort you experience sitting in a middle seat on a long flight. Sure, you’d rather have a window or aisle seat (or better yet, a fancy seat up front!), but it’s absolutely something you can tolerate. That helps. So does trying to remove as much temptation as I can. If the dessert isn’t in the house, I can’t eat it. If I don’t go to my favorite shoe store, I’m not tempted to try something on.

It took a me number of years, and more than one false start, to get my financial house in order. And in many ways, it’s still a work in progress. Because I didn’t save enough when I was in my 20s and 30s, having a comfortable retirement means that I need to earn some income into my 70s. I’m lucky that this is an option for me, and luckier still that it is work I enjoy.

I’ve also embraced a very powerful lesson: Forgive yourself for past mistakes and know that you can accept where you are and keep making it better.