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Resolve to build a stronger retirement

Jean Chatzky shares five financial tips and ways to help keep your savings on track.

Financial commentator Jean Chatzky.

With 2014 on the horizon, you may find yourself thinking, "This is the year I'm really going to get ready for retirement," or, "This is the year I’m going to amp up my saving and other plans." Getting a handle on finances is among the most popular New Year's resolutions. It’s also one of the most frequently broken.

But not this year! Thanks to advances in technology and the study of human behavior, there are now tactics you can use to help stay on course. Here are five smart financial resolutions and suggestions to help you keep them.

1. Set your retirement goal.

Whether you’re trying to lose 10 pounds or run a 10K, it’s easier to accomplish something if you know what your goal is. When the goal is a long way off—retirement, for example—it's critical to get on your path early. If you haven't already, spend a little time calculating and planning for retirement.

» Try our retirement calculator.

If that thought is daunting, a financial professional can help you get going. One thing to keep in mind: It's not just knowing what you're doing that's important, but why you're doing it. "People who feel they have to do something quit sooner than when they are doing something that they feel is important to them," explains Mark Muraven, Psychology Professor at the University of Albany. "It takes a lot less strength than if you feel nagged into it."

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2. Save more each year.

One reason 401(k) plans work is that they fight human nature. The money comes out of your pay before you have the opportunity to spend it. And, if you want to access it before retirement, you have to pay pricey penalties and taxes.* Those costs hurt too much, so you're less likely to access the money. If your employer offers to automatically escalate your contributions, sign up. If not, set a calendar reminder to increase your deferral by one or two percent every year on January 1 or the anniversary of your employment. Those costs hurt too much, so you're less likely to access the money. Oh, and while you're going through the process, share what you're doing with a friend. A breakthrough study (PDF: 380 KB) by Dr. Gail Matthews of Dominican University revealed that people who write down their goals, share that information with a friend and keep that friend up-to-date each week on their progress were 33 percent more likely to succeed than those who didn’t have another person in their loop. 

3. Look for more ways to save.

All the retirement planning in the world won't be enough if you find yourself dipping into your nest egg, so you may want to go beyond your employer's plan. Start planning now for the financial needs you'll face before retirement. Do you want to help your kids (or yourself or spouse) pay for college? Is there likely to be a wedding in the family in a few years? Whatever goals you have, it's important to start saving as soon as possible. Look for savings vehicles that give you a leg up, and are hard or impossible to raid before the money is needed. For education expenses, that might mean a 529 college savings plan. Automating your savings through payroll deductions or automatic account transfers is a key to help make any savings plan work.

4. Cut unnecessary spending.

What's the flip side of saving more? Spending less. For most of us, it's impossible to do one without the other. Keeping tabs on where your money is going might be the wake-up call you need to find places to cut expenses. Ryan Howell, Psychology Professor at San Francisco State University and co-founder of, suggests also taking advantage of what he calls the "pain" of money. "We don't like to spend cash, but have no problem spending on credit," he says. "We don't like to spend large bills, but we do like to spend small bills." The solution, he says, is to put $100s rather than $20s in your wallet and take the credit cards out. "You can really keep yourself from making a lot of poor decisions if you use big bills."

5. Resolve to take one small step at a time.

Willpower, it turns out, is a limited commodity. Like so many other things in life, we have just so much, explains Roy Baumeister, Professor of Psychology at Florida State University and author of Willpower: Rediscovering the Greatest Human Strength. "We find that at New Year's, people often make a whole series of resolutions that take willpower," he says. "Every time you put energy into one it takes away energy for the others. A better strategy is to make your resolutions in a series—don't start on the second until you finish the first." Organizing them from easiest to hardest also makes sense. "Willpower is a muscle," he says. "If you pick one resolution and succeed, it builds strength and enables you to go on to the second."

Take steps to strengthen your plan for retirement.

Talk with a financial professional Resolve to increase your salary deferrals this year and strengthen your plan for retirement. Contact a financial professional to learn steps you can take.

* Your distribution will be subject to ordinary income taxes (20% will be withheld for federal taxes as required by law). A cash distribution is also subject to a 10% federal penalty unless you are age 59 1/2, age 55 or more when you separated from service. Some states may require state income tax withholding. You may want to consult with your tax advisor before taking a distribution in cash.

Jean Chatzky is a compensated financial commentator, is not affiliated with any company of the Principal Financial Group and the views she expresses are not necessarily those of the Principal Financial Group or any member company.

Mark Muraven and University of Albany are not an affiliate of any company of the Principal Financial Group. Dr. Gail Matthews of Dominican University are not an affiliate of any company of the Principal Financial Group. Ryan Howell and San Francisco State University are not an affiliate of any company of the Principal Financial Group. Roy Baumeister and Florida State University are not an affiliate of any company of the Principal Financial Group.

The subject matter in this communication is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

© 2013 Principal Financial Services, Inc.

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