What do people really know about their 401k plans?
Research shows that many people are confused about saving for retirement. Elizabeth Keatinge has more.
A little over a decade ago, I made a very simple decision about my retirement investing. The choice I made has helped me stay on track toward accomplishing my goals, so I have complete faith I will have the money I need in my later years.
Here’s what I did.
This decision changed the game for my retirement savings
Automating my retirement savings was the choice I made – and it was my single best investing decision because it has made all the difference for ensuring I have enough for my future financial security.
See, when I first started saving, I set retirement goals for myself based on my chosen retirement age as well as the amount of money I would need as a senior. I also opened up a tax-advantaged retirement account to begin making my contributions.
Unfortunately, I found that while I had high hopes for how much to save, often the money didn’t actually end up making it into my brokerage account each month. I’d put off transferring the funds, and by the time the month was over, I would have too little left to contribute the necessary amount.
To ensure that no longer happened, I made saving for retirement my top priority. And I set up an automated transfer from my bank account to my brokerage account on the day my payment was deposited from the company I did the most work for.
Ever since that time, I haven’t missed a single contribution. That’s because it is generally much easier to stick with the status quo than to make a change. In order to not contribute to my retirement accounts, I would have to manually go into my bank account before the money is withdrawn and make a conscious effort not to allow the money transfer.
That’s a lot of effort, and the process also gives me time to think about whether I really want to jeopardize my retirement goals for whatever short-term purchases I would otherwise make. Once I have to take that extra step, I almost always find that it’s more important to me to stay on track with my savings efforts.
► When will I get my social security checks? It’s not as simple as the 1st of the month
► Could your ex be your ticket to bigger Social Security checks? Yes, ex-spousal benefits are a thing. Here’s how they work.
Automating contributions makes saving for retirement easy
Setting up automatic contributions to a retirement account is easy for most people if a workplace 401(k) is available. You can just sign up with your employer to have money taken out of your paycheck.
But if you’re like me and you don’t have that option (in my case, since I’m a contractor and freelancer), that doesn’t mean you can’t do what I did and streamline the process of investing. Banks and brokers both allow you to set up automatic deposits, and doing so significantly reduces the chances that a contribution will be missed.
The key is to start by setting your retirement savings goal, break the large number down into small ones so you can see what you need to invest each month, and make sure you’re living on a budget so your automatic contribution doesn’t end up overdrafting your bank account.
If you can do that, you’ll be surprised how easy it is to invest for retirement once your money is automatically moved right into your savings.
Offer from the Motley Fool
The $16,728 Social Security bonus most retirees completely overlook: If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known Social Security secrets’ could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.