First in a series of three articles on retirement planning and saving.

(Author’s note: This “fisherman’s parable” has been told in many ways over the years, and no original attribution could be identified. The basic story may be rooted in Buddhist tradition.)

A successful banker was taking a rare vacation in a remote fishing village. One morning he noticed a fisherman come into the port, unload a full catch of beautiful fish, and pack up his gear. He approached the fisherman and asked if there weren’t enough fish to fish all day, rather than just in the morning.

“Oh, no, there are plenty of fish.”

“Then why don’t you fish all day and catch more fish?”

“I catch plenty of fish to meet the needs of my family.”

“What do you do the rest of the day?”

“I play with my children, take siesta with my wife, enjoy some good food, sip wine and play music with my friends, many things.”

“Listen, I am a successful banker and I can help you. If you fished all day, you could buy a better boat, and eventually you could buy a second boat and hire a crew to work it.”

“Then what?”

“Then you could move to the city and working with some bankers you could buy boats in every fishing village along the coast. Eventually you could sell stock in your fishing company to the public, make lots of money and retire.”

“Then what?”

“Then you could move to the ocean, play with your children, take siesta with your wife, enjoy good food, sip wine and play music with your friends, many things.”

There are plenty of obvious lessons here, such as the importance of savoring the present, focusing on what is most important in life, and that less can sometimes be more. It also shows the significance of attitude and perspective.

From a financial planning point of view, however (and, yes, financial planning can be applied to nearly any story), it nicely illustrates that there are often many ways to get to the same result. This is particularly true in planning for retirement, where the prevailing sentiment has changed in the last few years from “I can retire early (even though I have very little retirement savings)” to “no one will ever be able to retire and it’s the fault of the government, Wall Street and greedy corporations”. The reality is that if we can let go of unrealistic preconceptions of what retirement means, planning becomes less daunting and more manageable.

As reported in the Wall Street Journal, there is a significant gap between beliefs and actions regarding retirement saving. A 2008 study showed that 20% of people who said they were contributing to a retirement plan were actually putting no money in; others overestimated the amount they were contributing by nearly 80%. And only one out of eight workers who said they intended to raise their contributions actually did so.

Saving for a long-term goal such as retirement is very abstract, and as a result too many people fall victim to the temptation to spend now rather than save. But there are a number of ways to make yourself feel as if the future is now and make the long-term goal more real.

• Autopilot. Retirement saving should be automatic, either through payroll deduction or regular transfers to other accounts. Some 401k plans include options to automatically increase contributions, either by a specific percentage each year or based on salary increases. In addition to increasing contributions to the level at which it “hurts”, or causes you to slightly reduce other spending, take advantage of these options. If your retirement plan doesn’t have these options, use the same concept to increase your contributions yourself.
• Set a retirement date now. While it can always be adjusted, having a specific date helps bring future needs into much greater focus. Referring to the retirement account by its “date” helps even more.
• Make the future vivid. Use pictures, music or written notes to bring the goal to life. In the fisherman’s parable, those images could be the ocean, fishing and playing music, which still leaves plenty of flexibility for the exact details.
• Enlist support. Sharing and discussing your goals with your partner, a friend or a family member will further reinforce the images. Make sure your confidant is supportive and constructive.
• Be consistent. Once those images are set, make decisions that support them. For example, stretching to buy a mountain vacation home in your 50’s could put the beachfront retirement plan at risk.
• Monitor progress. While investment results can fluctuate widely, regularly monitoring the amount being saved increases the likelihood of meeting the savings goal. Use simple calendar reminders or more sophisticated website monitoring tools (see autopilot).

Saving for retirement should not require us to become obsessive or to think of ourselves as misers. A little forethought and financial balance can put you on the right course and put you in control of your retirement.

May 2011

(Next: Saving for retirement)