How to automate your way to a comfortable retirement

Saving money for retirement isn’t a function of brilliance, high moral standards, or better education. Some of the best retirement savers have an easy formula for meeting their goals: they automate the process. 

Elaine Thompson/AP/File
Retiree Joseph Visintainer plops down on the floor of the coffee shop of his local senior center to greet a visiting dachshund dog. Making automatic retirement contributions can help you stick to a savings plan and ease worry about short-term market fluctuations.

One of the great honors of working with wonderful clients is learning their secrets for success. Some people have fabulous jobs with great incomes. Others enjoy life while earning and spending far less money. Many are able to save vast amounts for retirement.

The question is, how do they do it?

Saving money for retirement isn’t a function of brilliance, high moral standards, better education or having green eyes. What these savers are really good at is finding a system that works for them and sticking with it.

Most of my best clients have an easy formula for meeting their savings goals: They automate the process. As a client recently explained it to me, “If I do not have any money in my checking account, then I cannot spend any money.”

So when developing her financial plan, we identified her workplace 401(k) as a great way to save. She now puts $18,000 a year into her account, and her company contributes $5,000 more, so she is saving more than $23,000 a year for retirement. If she contributes $23,000 a year starting at age 25 and her funds grow at 7% per year, she would accumulate more than $1 million by her early 50s.

In implementing her plan, we devised a series of automatic ACH payments from her bank account to fund other financial goals. ACH stands for Automated Clearing House, an electronic network for financial transactions in the United States. So just like the payroll withholding to fund her 401(k) account, we used an ACH to fund other investment goals, such as future travel plans or buying a home, with great success.

She has an easy and wonderful strategy to plan for her financial future. She has identified a goal and a simple way to succeed.

People are often too focused on how their investments did last week, last month or last quarter. The real question to address is, “When will I need the money?” Your time horizon will help you determine how best to invest your funds. The longer the time horizon, the more aggressive your allocation can be.

My client understands that stocks have provided the best chance to provide good investment returns that will beat inflation, when considered over the long term. She understands financial markets well enough to know that falling stock prices represent an opportunity to buy good investments at a lower price.

She views stocks purchases like buying a new appliance: “You’re telling me that the investment we were discussing six months ago is now 20% cheaper for the same investment?” Considered that way, the ups and downs of the stock market are not to be feared. She doesn’t focus on the decline in value but rather the opportunity for future growth.

Her secrets for success are simple: Save today and automate the process to give yourself the discipline you need, then look at short-term market blips as long-term opportunities.

“I do not drive myself crazy by constantly agonizing over every economic story and how it affects investments,” she said.

And she told me one more thing: “Larry, I hired you to do the worrying.”

Learn more about Larry on NerdWallet’s Ask an Advisor.

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