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Want to save more for retirement? Age yourself

(MoneyWatch) Financial analysts and policymakers have long scratched their heads over how little money most Americans have saved for retirement. 

Is it lack of knowledge? Are people simply unaware of how much money they need to ensure adequate retirement income? Or are their budgets stretched so thin that there's just not enough money left over to set aside after paying the monthly bills? Is it lack of motivation? Would people prefer not to divert money from today's spending so their futures might be more secure?

My experience is that all of these factors can come into play to varying degrees, depending on each person's specific circumstances and financial outlook.

To help with two of the impediments to saving noted above -- knowledge and motivation -- Merrill Edge recently launched an innovative software package called Face Retirement that they're encouraging the public to use. (Merrill Edge is a unit of Bank of America (BAC) that serves the "mass affluent," defined as people having $50,000 to $250,000 in investible assets.)

I recently spoke with Alok Prasad, head of Merrill Edge, who told me that Merrill Edge's fall 2012 report "shows that retirement security is a top concern among our clients, but people aren't engaged to address the problem." My take on this: It's another example of "retirement schizophrenia." Although people are worried about retirement, they aren't doing anything about it. Let me just point out that worry is not preparation!

The Face Retirement software was inspired by innovative research sponsored by the Stanford Center on Longevity, which showed that people who see age-enhanced photos of themselves are more willing to increase their savings for retirement. In one version of their studies, people who saw an age-enhanced photo of themselves were willing to put an average of 6.75 percent of their salary into a 401(k) plan, while the control group who hadn't seen such a photo said they would contribute an average of only 5.2 percent of their pay.

To help boost your motivation to save for retirement and increase the amount you're setting aside, the Face Retirement software shows you what you might physically look like in the decades to come. I took the Face Retirement software for a spin and found it both motivating and easy to use. All you need is a computer with a built-in camera; I allowed the computer to take my photo, answered a few questions, and quickly saw photos of myself at ages 67, 77, 87, 97, and 107. I've used other face-aging software, and I found Face Retirement the easiest to use. Perhaps more important, the age-enhanced photos were much more kind than other face-aging software that distorted my face so much that it was scary.

My age-enhanced photos did make me more compassionate toward my future self and made me want to make sure I'd be financially secure at ages 77 and 87, when I was still looking pretty good. (My future self at 97 and 107 didn't look too bad either, and my wife agrees!) It's hard to form an opinion about whether the software increased my motivation to plan for retirement, since I'm already extremely motivated. But I can easily see that people using this software might be inspired to take steps to make their future selves more financially secure.

Prasad says he encourages users to share their results with spouses and friends in a fun-spirited manner, noting that 64 percent of Merrill Edge's survey respondents report that conversations with their spouse help them better plan financially.

I can add another tip for using the Face Retirement software: Smile! While the software instructs you to use a straight face, I liked my future self better when I smiled. And this conclusion is supported somewhat if you dig into the full research report from the Stanford Center on Longevity.

Although we've talked chiefly about the motivation to save for retirement, to really make a difference we need to discuss the other two critical factors that stop people from preparing -- knowledge, or how much to save, and finding room in your monthly budget for savings.

The Face Retirement software links to an easy-to-use retirement calculator prepared by Merrill Edge that will help you learn more about how much you need to save to generate enough retirement income in the future. Stay tuned for my next post, in which I'll review this software and address these other two factors in more detail to help you boost your retirement savings.

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