Many young working professionals believe they should start saving for retirement only after 40. After all, there are several other goals to achieve before 40, like buying a house and funding children’s education.

But though starting early to save for retirement is important, many fail to do so. Here’s why this happens, and how to work around it.

Consumption — now or later? It is not easy to divide your income between current consumption and savings. Current consumption leads to instant gratification — you enjoy the benefits of consuming products and services today.

When you save, you are setting aside money today for future consumption. So, you reap the benefits of today’s savings only in the future. Emotionally, therefore, you derive more satisfaction from current consumption than from savings. This is the primary reason why most people spend more and save little only to regret later.

The issue is not just about current and future consumption. You are more likely to save when the benefits of future consumption are salient. Why else do you find it easy to save for your child’s college education and not for your retirement?

It is also typical for individuals to assign less importance to a goal that has a longer time horizon than one with a shorter time horizon. All this boils down to the same issue — that you are unlikely to be motivated to save for your retirement early in your career!

We are, of course, not considering the fact that you are not saving for retirement because you are already stretched with your monthly budget — a situation where your current savings is only enough to meet top-priority or near-term goals such as a child’s education or buying a house.

Should you then postpone saving for retirement? We still believe that you should contribute at least a small amount towards your retirement fund. But where will you get the money for that?

Try to marginally reduce your contribution to other life goals. Any shortfall in your investment account to meet your near-term goals can be bridged with savings from your annual salary raise.

Self-motivating The answer to motivating yourself into saving for retirement lies in how you behave when you have a goal in sight.

Think about the purchases you would make to accumulate points on your store card or credit card just to avail of an offer. For instance, a store might offer you a free vacation if you accumulate, say, 50,000 points on your card. If you already have, say, 43,000 points, you are more likely to spend just to accumulate the remaining 7,000 points to get the offer. The reason is simple. When you have a goal in sight, you are motivated to work harder towards reaching the target. So how can this be translated into a retirement savings habit? Break your retirement goals into smaller near-term goals. Specifically, set five-year targets.

Suppose you need ₹10 crore in your retirement fund 30 years hence. Based on your savings contribution, assume your required return is 10 per cent per annum. You should calculate how much you should have in your retirement fund five years hence based on 10 per cent annual return on your yearly contribution. That should be your near-term target.

You can likewise have targets every five years to motivate yourself to save for retirement. You can use the same process for other distant life goals that you would like to achieve. The objective is to bring forward a distant life goal to a focused near-term milestone.

The writer is the founder of Navera Consulting. Send your queries to portfolioideas@thehindu.co .in

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