John J. Diak, CFP®
Put Your Retirement Savings on Autopilot
We all have a mountain of responsibilities in our daily lives, and sometimes the most important tasks fall by the wayside. Although saving for retirement should be at the top of our to-do list, all too often, it gets pushed back and overlooked. “I’ll get to it tomorrow,” turns into “I’ll start next year,” and before you know it, a decade can pass without giving your retirement savings the attention it deserves or the funding it requires.
Automating your retirement savings can be the difference between getting it done and just wishing you had. You’ll never reach your retirement savings goal if you don’t start making progress towards it, and putting some tasks on autopilot practically does the job for you. While you never want to take a “set it and forget it” approach to retirement planning, you can make the act of depositing funds into your accounts run like clockwork with little effort on your part.
The biggest truth about retirement savings is the sooner you start, the better off you will be. Getting serious about saving for retirement at 25, even when your income is nowhere near where you would like it to be, is far better than starting at 35, which is vastly better than 45. But no matter where you fall on the road to retirement, the best time for you to start is now—whether you are freshly out of college or you’ve put it off for a while.
First, let’s look at how you can start automating your retirement savings, and then we’ll dive into the role you will still need to play in the process.
Ways to Automate Retirement Savings
In generations past, saving for retirement was manual and tedious. Writing and mailing checks, waiting for account statements in the mail, reading about the market in financial newspapers, and meeting with your advisor took up a lot of time. Even though we may continue to engage in some of these activities, there are more efficient ways to manage the time-consuming aspects of our finances.
Join Your Employer’s 401(k) Plan
A company 401(k) is often the first step to retirement savings. As soon as you have the option to sign up for an employer’s retirement plan, you should do it. At a minimum, always take full advantage of any employer match; otherwise, it’s like leaving free money on the table.
Participating in the 401(k) plan means the money is coming out of your paycheck before you even see it. And considering tax savings, the reduction in your take-home pay is not as much as you might think.
Automate IRA Deposits
It’s possible to set up recurring deposits into your retirement accounts through payroll or automated transfers from your bank account into your retirement accounts. By doing it this way, you don’t even have a chance to miss the money or decide to use it on something else. Instead, it can be squirreled away in the same way payroll taxes are withheld or a regular recurring bill is paid.
As the years go by, you should also be increasing the amount you are saving towards retirement. Otherwise, you will likely give in to the tendency to allow lifestyle creep to outpace any increase in earnings. Making more only to spend more often gets in the way of progress towards retirement goals and impedes financial independence. Ideally, it’s best to max out your IRA as often as you can.
It’s common for retirement plans to give you the option to automatically increase your savings each year by a specific dollar amount or percentage, which can be one of the smartest moves you’ll make.
Diversification is key to successful retirement portfolio management. By diversifying your holdings and allocating investments among a wide range of industries and financial instruments, you can potentially reduce risk while continuing to pursue returns over time.
Specific types of mutual funds tailored for your planned retirement period are geared to shift more conservative as you near your retirement year (e.g., called target date funds). By choosing this kind of fund, you are essentially automating diversification with a pre-selected mix of stocks and bonds that the fund’s manager manages for shareholders on a similar time horizon. The target date is the approximate date when investors plan to start withdrawing their money. The principal value of a target fund is not guaranteed at any time, including at the target date.
While you should not rely on this approach as your only strategy, holding this kind of mutual fund can make diversification for at least a portion of your portfolio simpler.
Use a Saving and Budgeting App
Digital technology has made investing more accessible to the masses and it’s something Millenials and Gen Z investors are embracing. Try using a smartphone app that automates the process and encourages saving regularly.
You might even consider passing this information along to your teenagers. College students can get a headstart on automating their retirement savings, even if it’s just $5-20 a week from their part-time job. The earlier the better!
How to Monitor and Manage Your Retirement Savings
As mentioned above, while automating major aspects of your retirement savings can be a significant time-saver, successful retirement planning is not a “set it and forget it” process.
Work With a Financial Advisor
If you have to get started on your own, don’t delay, but the sooner you can begin working with a financial advisor for your retirement planning, the better. When you rely on DIY investing or fully automating your process, you will likely take your eye off the ball and let adjustments slip by unnoticed.
Get professional guidance and the support of an advisor who is working in your best interest. Working with a professional can provide insight into whether you are making the right moves with your retirement savings.
Monitor Your Portfolio
Whether you are just getting started and taking the DIY route or working with a retirement planner, it’s your nest egg and your responsibility to watch it closely. You don’t have to look at it every day, but it’s crucial to avoid handing over complete control without due diligence or blindly trusting anyone with your money.
Always take the initiative to educate yourself well enough to ask the right questions, understand what is happening with your investments, and recognize what is going on with your portfolio when you check it.
The Bottom Line
When it comes to retirement savings, automation saves you a great deal of time and can increase your chances of reaching your goals. The trick is to let automation do the heavy lifting without going completely hands-off, and recognizing out of sight shouldn’t mean out of mind.
Consistent deposits on autopilot, automated increases along the path to retirement, and taking an automated approach to diversification can supplement the efforts you make on your own and with your advisor.
John J. Diak, CFP® is the Principal & Client Wealth Manager at Oatley & Diak, LLC in Parker, Colorado. He assists clients through many difficult lifestyle changes such as business downturns, retirement planning, divorce, the death of a spouse, and family estate issues among others. Oatley & Diak, LLC is a family-run registered investment advisory (RIA) firm that provides clients with investment management and financial planning services in a hands-on, intimate environment. Learn more about them at oatleydiak.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions and it may not achieve its investment objective.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.