Closing the Intention-Action Gap

According to a recent Bank of America Merrill Lynch study, there’s a gap between a pre-retiree’s intention to save for retirement and the actions they actually take to save for retirement. Consider these key findings from the study:

  • While most Americans realize retirement will be the biggest purchase of their lifetime, costing 2.5 times the price of an average home, 81% say they do not know how much they will need to fund their retirement.
  • While most people say they want to live to the age of 90, only 27% of pre-retirees age 50+ feel financially prepared to fund a retirement that lasts 10 years, let alone 20-30 years.
  • Americans are saving only a fraction of what they think they should – 5.5% vs. 25% of their annual income after taxes.

Operating under the assertion that “forewarned is forearmed,” here are a few things pre-retirees ought to focus on to turn their intentions into more concrete actions to better prepare for retirement:

  1. Identify where you can be more proactive.
  2. Examine what you are spending your money on, and where there are opportunities to cut costs – even small ones – to save more.
  3. Acknowledge that not everything goes to plan – priorities change or an unexpected cost occurs. It’s okay to be flexible as long as you’re keeping an eye on your long-term goals and how you can get there.

As the last point suggests, closing the intention-action gap does require a commitment to stay focused on your long-term financial goals. One expert from the study suggested the following to help you stay on track: Set aside one hour a week to pay bills and keep your budget up to date, and two hours a month for financial projects such as reviewing your net worth, insurance, tax plans and the like. Also, create a reminder on your electronic calendar to pay your bills and review your budget the same day of the month.