Automate Your Retirement Plan In Three Simple Steps

Many people and quite a few retirement experts pine for the days of pensions, when working people could be assured that someone was watching their back on retirement saving.

Then, with the IRA revolution, things changed. While the politicians’ heads were in the right place, giving people the tools to save for themselves in many cases let their employers off the hook.

Pension plans slowly faded from view and even from memory as millions of young people started to work at companies that simply didn’t offer a pension. Meanwhile, making saving for retirement voluntary has led to a predictable outcome: Too many folks did nothing or the minimum, and now they aren’t ready to retire.

What can you do to avoid a similar fate? Behave like a pension fund manager. Automate, automate, automate, the earlier in your career, the better. Here are three steps you can take to make your own highly dependable retirement plan:

1. Save the right amount

People too often save the minimum to get a corporate match (usually 5% or 6%) or they save some round number, such as 10%. If you start early enough, 10% is plenty to retire with a comfortably large nest egg. If you are starting late, however, you’ve already lost some of the advantage of compounding.

It’s much better to pick a total dollar number you need to be mentally comfortable with leaving work, and then work backward to calculate how much of your income, properly invested, it would take to achieve your goal by a given retirement age.

2. Maximize pre-tax savings

Saving into a rainy day fund is smart. Having cash on hand to cover emergencies such as deductibles for insurance or sudden healthcare costs is a fundamentally strong approach to your finances.

Yet don’t let that short-term goal shortchange the advantage you get from taking money out of your paycheck for a 401(k), IRA or other pre-tax savings vehicle, such as a health savings account. Every dollar you save in those lowers your tax bill today, which can have an important impact on your ability to build up savings.

3. Roll over and manage

Don’t leave money behind. While ignoring your investments can be a good long-term approach, ignoring your total portfolio is generally a bad idea. Pockets of money in old workplace plans can and should be consolidated into a single IRA. Managing all of your savings as a coherent total will go a long way toward ensuring success.

Getting from there to here with retirement saving and investing is a not a grinding, full-time job. Make a few important steps early and you can reduce your need to oversee your retirement plan to a few hours a year using simple online planning tools.