Saving for retirement is a very personal and complex process. But retirement plan improvements are making it easier for you to stay on track. You only need to take the time to set them up. Here are three retirement plan features you could use to help you save more and stay properly allocated.
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Automatic monthly contributions. When the company pension stopped being offered to new and existing employees it became your responsibility to prepare for your retirement. Now you’re more likely to be offered a 401(k) at work. You have control, which means you have to take the time to set it up and contribute.
Most companies now allow you to automatically deposit part of your of paycheck in a 401(k). If you're not taking advantage of this feature, I highly encourage you to take the time to set it up. You can start with a small percentage. Most people report that when they do this, they never think about or miss the money going to their 401(k).
Automatic annual contribution increases. Another automated tool that's great to set up is automatic annual contribution increases. Let's say you begin your 401(k) contributions at 5 percent of your income. When you set up an automatic increase, an additional amount will be contributed the next plan year, such as 6 percent. You can usually increase in increments of one percentage point or more each year. This feature allows you to put part or all of your salary increases toward your retirement savings.
Target-date retirement funds. Two of the biggest issues that retirement investors face are not properly establishing an appropriate asset allocation and failing to rebalance their investments every year. Many investors don't even understand what an appropriate asset allocation is. Target-date retirement funds make these asset allocation decisions for you.
A target-date fund is a mutual fund that is assigned a target retirement date, usually spelled out in the fund’s name. A fund manager manager shifts the asset allocation of the fund over time to more conservative investments. It's not a perfect system, but this asset allocation attempt is better than nothing. Until you are savvy enough to do your own portfolio balancing act and can remember to do it each year, consider using one of these single funds.
A warning about one-size-fits-all retirement plans. Just because you can set up these automatic features doesn't mean you can ignore your investments. You still need to pay attention to your retirement plan. Make sure you learn about proper asset allocation and take care to avoid high investment expenses.
Phil Taylor is the author of the popular 52 Ways to Make Extra Money. Find out how to save more money and get the latest news on the best online savings accounts and the best online stock brokers at his blog, PT Money: Personal Finance.