Back in his 20s, Warren Buffett often asked himself, “Do I really want to spend $300,000 for this haircut?” An avid fan of compounding, the future billionaire constantly questioned whether spending money today was worth losing what he could have in the future if he invested it.
Buffett is, obviously, the exception. Most of us tend to value immediate gains over future ones. With the Thrift Savings Plan in particular, employees younger than 40 have historically contributed the least to their retirement accounts, though savings rates are currently on the rise.
Part of this may be psychological. A 2008 Stanford study found that, when asked to think about themselves in the future, many participants used the same part of their brains as they did when thinking about other people. In other words, saving for something as far off as retirement can feel like socking away money for a stranger.
Here are three ways to change that:
- Envision your journey. The TSP created a special website that follows an employee named Fred throughout his Federal civilian career. Early on, he contributes at least 5% of his salary to take full advantage of the matching money available from his agency. Then, as he moves from a cubicle to a corner office, he increases his contributions based on what he can afford. As our Take FIVE for Your Future campaign enters its third week, we encourage you to plot your own retirement plan.
Face your golden years. In one experiment, college students looked at digitally aged avatars of themselves on a screen. They were then asked what they would do with $1,000. On average, those who had seen their older selves said they would put twice as much towards a 401(k) plan as those who had not. In a similar study, young participants who saw what they might look like in retirement were willing to increase their recurring contributions by 30%.
Spell out what you want. Research has found that simply taking a few minutes to write down what a comfortable retirement would look like can make people boost their savings rates. For example, do you hope to travel, spend time with your family, or explore new hobbies? Let those images inspire your saving.
Want to do something for your future self?
You can increase your TSP contributions in just five minutes. Sign into your agency’s electronic payroll system and select the “Thrift Savings Plan” option. If your agency doesn’t have an electronic system, you can also complete Form TSP-1 and send it to your agency’s payroll or benefits office.
Next week: Young Feds: Your Retirement Questions Answered
Similar to private sector 401(k) plans, the TSP is a defined-contribution plan that provides Federal employees the opportunity to save for additional retirement security. If you have a question or comment about this post, please contact us directly. We are unable to respond to any messages on this site.