Frank Sinatra had regrets – though too few to mention.
That’s not the case, however, for many people saving for retirement.
Americans harbor a number of regrets about past spending – especially on short-term pleasures – which prevent them from saving more for retirement, according to a recent survey published by Charles Schwab that examined the attitudes and behaviors of 1,000 401(k) participants nationwide.
Specifically, two-thirds of 401(k) participants wish they had spent less in the past to save more for retirement, especially on short-term pleasures like meals out, expensive clothing, new cars and vacations, according to Schwab.
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But those responding to Schwab’s survey don’t regret spending on things that contribute to long-term success and happiness, such as housing, weddings, student loans and tuition for their children.
So, what advice do experts offer to those saving for retirement who want to avoid feeling regret?
Set goals and develop a budget
The best way to avoid spending ‘regret’ is to have a really clear picture of what your goals are, and how you’re achieving them, says Angela Fontes, the director of the Behavioral and Economic Analysis and Decision-making and the manager of analytics consulting in the statistics and methodology department at NORC at the University of Chicago.
“There are a number of great online tracking tools that allow people to allocate specific budget amounts to individual categories such as ‘eating out’ or ‘clothing,’” she says. “Using these types of tools would help people clearly understand their financial choices before they make them, instead of regretting things after the fact."
To prevent short-term purchases and overspending, develop a budget that limits purchases of nonessential items, says Victor Ricciardi, the co-editor of Financial Behavior: Players, Services, Products, and Markets. “Remember the purchases of today will result in having less money in the retirement of tomorrow,” he says.
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For his part, Stephen Wendel, the head of behavioral science at Morningstar, says regret shows that people want to have done better and usually want to do better in the future.
“It, unfortunately, doesn't mean the problem will be solved,” he says. “People need concrete tools to help overcome the gap between intention and action.”
Some of the tools are obvious. Don’t opt out of automatically enrolling in your employer-sponsored retirement plan, and do have your contribution automatically escalated.
Open a retirement account
If you don’t have an employer-sponsored retirement plan, Fontes recommends opening a retirement account, such as an individual retirement account (IRA) at your local bank.
“If people aren’t ready to dive in to a retirement savings account immediately, their current bank likely has information online, or better yet, people you can call or stop in to a branch, to get more information,” she says.
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Use prospective hindsight
Other tools to avoid or lower regret are less obvious.
Morningstar's Wendel recommends using a technique that behavioral scientists call prospective hindsight.
Here's how it works: “Imagine you’re in the future, and a particular event has already happened,” Wendel says. “For example, you’ve retired, and you don’t have the money you need; things aren’t going so well. Explain why this happened.”
The technique, says Wendel, centers on a change in perspective: You’re in the future, looking back at something that has happened. “It then asks people to tell the story of what led up to the outcome,” he says.
With this technique, he says you would “feel future regret now and change course before you end up spending money in a way you'd regret.”