5 Ways Your Retirement Account Can Grow Automatically

The backbone of growing a retirement account can be summed up in two words: save more.

Easier said than done, right? But there’s another axiom that truly moves the needle when it comes to saving for retirement — out of sight, out of mind.

The biggest obstacle many people face when trying to save it is avoiding the urge to spend cash in hand. Money sitting in a checking account is available 24/7, especially if you have a debit card.

Online shopping, unexpected bills, impulse buys. There’s a never-ending parade of needs to be met by the cash you can see right there in your paycheck, week in and week out.

So how can you grow your retirement automatically?

Easy. Take these five steps. Maybe one or two at a time, but all of them are easy wins when it comes putting more aside for your future.

Set up a 401(k) or IRA

This is a big one. Using your company retirement plan means your paycheck will shrink but so should your taxable income. More to your retirement bottom line.

The best part is you do this only once and it’s done automatically every pay period after. The only choice you have to make is when to increase the percentage you save, up to whatever annual limits apply.

No 401(k)? You can set up an IRA on your own or, if you are a full-time contractor, open a personal 401(k).

Get company matching dollars

Many companies encourage saving for retirement by adding money to your account based on how much you save. Usually, it’s something like half of the first 6% of your salary you put aside.

Some companies match more, but don’t fall into the trap of saving only enough to “get the match.” If you can automate more, go for it.

Ask that pay increases go to your retirement first

If you can’t save more now, check into automated increases.

Essentially, when your pay is adjusted upward for inflation or you get a raise, the company takes a portion of that increase and instead applies it to your 401(k).

Reinvest dividends and interest

You can’t take out money from your 401(k) without triggering taxes and penalties, except for under certain strict circumstances.

Given that reality, make sure your investments are working hard for you by automatically reinvesting any cash that comes in from your existing mutual funds. Many mutual funds do this anyway, but if not make sure you instruct your broker to reinvest.

Rebalance periodically

Another easy win. By choosing a specific mix of stocks and bonds in your investment plan, you are saying something about your long-term tolerance for volatility.

Over a period of a few years, however, that balance can be disrupted. If your stock holdings are meant to be 60% of your plan and they now represent 65%, it might be a good idea to sell off the gains and buy bonds.

Or, vice versa. If stocks fall, use the bond side to finance some stock purchases and get back to your ideal balance.

That’s automating the idea of “sell high and buy low” without having to try to guess which way the market will move next.

MarketRiders, Inc. is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.