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Investment Accounts

Automatic Retirement Investing: 5 Tips to Help You Save Effortlessly and Effectively

Automatic Retirement Investing

An automatic retirement plan offers one or more features that require no action from you, the employee. The most common automatic feature is enrollment. Employees are automatically enrolled at a preset contribution rate and are also automatically placed into a preselected investment fund. You might also be taking part in automatic increases in your savings rate or other automatic features that help build retirement savings over time. Not sure if you’re enrolled in an employer plan? Contact your human resources department, and also review your paycheck.

Automatic features can help you save more—and often earlier—than you would otherwise for retirement, frequently enrolling you as soon as you become eligible to participate. Even better, you can continue to participate as long as you work for your current employer or any employer that offers a 401(k) or comparable plan, though not all employers offer automatic features.

Just as your employer has made decisions about your initial enrollment and how your contributions are invested, you have a duty to yourself to know how your plan works. Just because you’ve been automatically enrolled doesn’t mean you should put your retirement investing completely on autopilot.

These five tips can help you make the most of your company’s automatic features:

  1. Know Your Defaults. Familiarize yourself with the default savings rate and investment selection your company has chosen for you. Ask yourself if you are saving enough—and take the time to read the prospectus associated with your investment.
  2. Take Full Advantage of an Employer Match. Most automatic plans set a default rate that ensures you receive the full match—but if not, increase your saving rate to make sure you’re putting enough away to grow a robust nest egg over time. A good total retirement savings rate to aim for is at least 10 percent.
  3. Go Up the Savings Escalator. If your plan offers automatic escalation, stick with it. Annual increases are a great and often painless way to increase your savings. If not, be disciplined and do it yourself. Remember that if you’re not saving at least 10 percent of your salary, you’re likely to come up short when retirement rolls around.
  4. Open and Read Your Account Statements. Your employer must give you an account statement at least once every quarter—and plan providers often send your statements on a monthly basis. You might also be able to access account information online. Make a habit of looking at your statements each time you get them, and ask questions about anything you don’t understand.
  5. Avoid Opting Out—or Cashing Out. Significant tax advantages and often an employer match come with your plan—important benefits that you’ll lose if you don’t stay in the plan. Even worse, if you opt out, you might not get back in for a while, which can put you way behind on your savings. If you leave your organization, resist the urge to cash out even a part of your savings for something you think you need. Retirement savings is just that—for your retirement.