Is Automation Right for Your Retirement?

One tip that I often give to readers here is automating your finances when possible. From our experiences I’ve seen how taking yourself out of the process can actually be incredibly helpful and help you reach your goals. It’s how we pay our bills, saved for a house, and bought a family car.

You’ve probably heard of paying yourself first. It means making sure you save and invest for your future, whether it’s short term like an emergency fund or a long term goal, like retirement. When you automate those payments you’re making sure that it gets done. No waiting until after all the bills are paid and there is little, if any, money leftover. Instead your goals are funded just other bills.

However while I believe that automating your finances can be a big advantage, it isn’t the end-all solution. You have to know when to automate and when do things yourself when it comes to your money. Retirement is a goal that money people want to achieve on time (or earlier if possible). Automating properly can be a big boost.

Pros and Cons of Automating Retirement Contributions

My husband’s job offers a 401(k) with a match so he contributes enough to get 100% of that match. That extra money from his company grows in his 401(k), building the balance faster than if it only had his contributions.  It’s automatically deducted from his paycheck so we’re never tempted to spend that money on something else. 

That helps us to take advantage of the power of compound interest. He signed up as soon as he qualified, giving his money more time to grow. He’s been there for years and we’ve seen the balance grow in that time. He doesn’t have to worry about missing a contribution, it’s automatically sent in every pay period.

Check to See If You’re Still On Target!

On the other side of automation is when he gets too busy and forgets to check his portfolio for performance. Every quarter or so check one’s asset allocation can make sure that the retirement fund is on target. It may be that it’s time to re-balance the assets so it’s back on target.

With our recent net worth review, we did discover that it was time for him to re-balance. Tonight we’ll review what needs to be changed and he can go on with his retirement contributions.

By the way if you have an IRA, you also need to check to make sure everything is balanced. For most people it’s simply redirecting furture contributions to make your portfolio match the target allocation you created. Others may sell and buy their current assets to get what they want.

If you find that you’d prefer automating re-balancing then having an account with a company like Betterment can be useful option. They can handle that task for you and it’s free. Check them our here if you’re interested in opening an account and getting a $25 bonus. Betterment’s specialty is using the advantages of index investing.

Of course they are not the only option for keeping your IRA. Vanguard , Charles Schwab , and Sharebuilder are other companies your can use.

Thoughts on Automating Retirement Contributions

How about you? How do you feel about automating your retirement? Do have automatic contributions set up for your 401(k) and/or IRA? What percentage of your pay do you put in? What are some of the pluses for you on automating your money? What are the negatives?

Disclosure: I’ve included affiliate links in my post.

Photo Credits: Carl Richards and Alan Cleaver