Retirement Plans: Some Advice from CNN Money

I saw a great post about retirement plans in CNN Money the other day by Walter Updegrave who is Money Magazine’s senior editor. He makes alot of suggestions about investing and retirement planning and I wanted to share them with you. He has 3 suggestions:

1. Take the saving decision out of your hands. People don’t fail to plan for retirement because they don’t believe it’s important. It’s because saving doesn’t come naturally to most of us. Part of our brain is hard-wired for immediate gratification. And even if you possess the willpower to forego pleasure today for a payoff tomorrow, exercising it on a consistent basis can be a tough considering that affording even the necessities can be a challenge these days.

That’s why the most effective way to save for retirement is to put your savings on autopilot. If you’ve got a 401(k) or similar plan at work, enroll in it so that money flows automatically from your paycheck into your retirement savings account before you even get a chance to spend it. If your employer doesn’t offer such a plan, then open a traditional or Roth IRA or do a 401k Rollover through an automatic investment plan that transfers cash from your checking account into a fund each month. Many fund companies allow you to start such a plan with a few hundred bucks or less. Make sure you are investing using an asset allocation strategy.

2. Don’t get bogged down by details. Despite good intentions, some people never get around to starting a retirement plan because the whole process just seems too complicated. Deciding how much money to put away, which investments to choose, how much to invest in each one…The number of choices can feel overwhelming and lead to paralysis.

I’ll let you in on a little secret, though: Every decision you make doesn’t have to be perfect. The most important thing is to get the process going. If you sign up for your 401(k), contribute at least enough to get the full employer match. Can’t manage that? Then start with a percentage of salary you can handle, even if it’s just 5% or less. If you go the IRA route, pick a monthly contribution you know you’ll be able to sustain.

As for investing, keep it simple there too. If you’re uneasy about choosing investments, go with a target-date retirement fund. If that’s not an option, go with a balanced fund or split your contribution between a total stock market index fund and a total bond market index fund or between a large-cap stock fund and a diversified bond fund. Or for that matter, just stick the money in a money-market fund until you find a better place.

3. Keep the momentum going. Good investing can help build your nest egg, but the surest path to a secure retirement is regular saving. So as you progress in your career and earn more money, try to ratchet up your savings effort as well.

You’ll increase your odds of maintaining your savings regimen if you avoid taking on unnecessary debt. Remember that study I mentioned earlier? Well it also found that Gen Yers hold more than three credit cards on average and 20% of them carry a balance of more than $10,000.

Hey, I know credit cards are convenient. But if easy borrowing is getting in the way of saving for retirement, then maybe you need to kick the plastic habit and operate on a cash basis.

Once you’ve got your retirement plan underway, you can always change or refine your choices later. You can re-assess how much to save, revise your investments and monitor your progress by checking out online resources.

But if you never take the first step, you won’t have anything to change or refine. Except perhaps your retirement plans, which you’ll have to downsize.