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ANNE KATES SMITH | Your Mind and Your Money Don't Step Into These Saving Traps M ost of us are aware that a sneaky Following the crowd. Determining the set of psychological biases can best investment mix for your stage in trip us up when it comes to in- life and your risk tolerance is a chal- resting and managing our money. And lenge, Sticking to the plan when the some of these biases seem tailor-made market is volatile requires fortitude. to foil retirement savers. Prudential Prudential found that 8% of savers Retirement, an arm of the insurance were most led astray by being herd- giant that administers 401(k) plans, followers. Regular portfolio rebalance surveyed plan participants in 2017 ing can keep your assets on target; to see which behavioral challenges a written investment policy can help troubled them the most. Here's what you stick to your guns. the survey found. Instant gratification. Would you wait a Longevity disconnect. Although no one year for $1,000 rather than receive $500 is eager to meet the Grim Reaper, a today? How are you with impulse spend- lot of us think we're not going to live ing? Most people who took Prudential's as long as we probably will. That's a quiz said that waiting, either for a higher problem when you're funding a longer- @kiplinger Washington Editors, Inc. return or to make a purchase, wasn't than expected retirement. For 39% of Some behavioral a big deal; only 5% revealed it as their those taking Prudential's quiz, falling major issue. But research published o see far enough into their senior years biases seem by the National Bureau of Economic posed the biggest behavioral challenge Research in 2016 found that more than to achieving financial security. Coun- tailor-made to foil half (55% ) of retirement savers suffered teract this bias by picturing an older from "present bias"-a wonky term version of yourself. Apps such as retirement savers. for wanting instant gratification. If you FaceApp can help. But their ill effects need a nudge, try a budgeting app or a commitment to cash-only spending to Procrastination. More than one-fourth of the savers quizzed turned out to are smaller for curb purchases you'll regret. The NBER research found another be put-it-off-until-later types. But those who are foible that keeps people from saving as when it comes to investing, squander- much as they should: Nearly seven in 10 ing time is a huge mistake, just as the aware of them. retirement savers misunderstood how opposite, investing early and often, account balances increase over time, can work magic-the magic of com- underestimating the exponential growth pound returns. Programs that enroll of compound returns and, therefore, employees automatically in retirement investing less than they otherwise would. In other words, savings plans are a boon for procrastinators; a lot of people aren't saving enough because they simply many plans let you escalate contributions don't realize how much money they're leaving on the table. automatically, too. "I use these biases as a conversation starter when I'm talking to clients," says ShirlyAnn Robertson, a broker and Optimism. Some 22% of savers suffered most from rose- Prudential financial adviser in Schaumburg, III. Helping colored-glasses syndrome. Believing that everything will clients understand them makes it easier to navigate their all work out in the end may be good for your blood pressure, financial concerns, she says. And here's the good news but it's not an efficient savings strategy. Plan for inevitable about these sneaky biases, according to NBER: Their ill bumps in the road, which can range from the catastrophic- effects are smaller for those who are aware of them. . being struck by serious illness, for example-to the merely disappointing-say, a missed promotion. ANNEKATES SIRITHIS EXECUTIVE EDITOR OF ATPLINGER'S PERSONAL FINANCE MAGAZINE. IN CONTACT HER AT ASM THE KPUN HO KIPLINGER COM