How Automatic Contributions to Investment Accounts Help in Retirement

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I want to put my retirement income on autopilot and focus on what makes me happy.

Learn more about the benefits to you of making automatic contributions to your investment accounts.

Benefits for you

Here are some examples of how automatic contributions can help

Make it a goal to automatically contribute to your retirement savings. You increase your chances of success and you definitely reduce your stress when you make it automatic!

Here are a couple of mathematical examples that show you what we mean. A two-year-old could save their modest $10 allowance and have enough money to make a down payment on a house! And a fifty-five-year-old might be able to retire three years earlier if they tuck away $500 monthly!

Two-year old

Fifty-five-year-old

A two-year-old with a ten-dollar weekly allowance contributes every week for 30 years and earns the average return for US equities, 10% per year. By the time she is 32, she has $99, 142. That makes for a nice down payment on a house. What a kid!

A fifty-five-year-old who wants to retire a little earlier would benefit by tucking away a little more every month. They want $50,000 in retirement income and have $3,000 per month from Social Security Retirement Income. The difference, approximately $14,000 per year, needs to be provided by their investments. Assuming they have already saved $100,000, a $500 monthly contribution to their investment accounts provides that income three-years earlier!

With contributions, it will take 13.4 years and without contributions, 17.2 years until they save enough additional money to provide that income.

How to decide on automatic investment contributions

Our kids call it "automagic!"

Let’s face it.  Making decisions can be stressful.  When we make the decision to automate our contributions, we only make the decision once. In fact, it’s possible to have less stress and have more money by automating our contributions.

Our kids called it “automagic.” When they were little, our kids’ vocabulary was creative. They often heard something different than what we said. Back then, our little kids could choose whether or not they were on swim team. But once they made the decision to be on the team, they had to wake up and go to practice for the entire summer. It was “automagic”—by the end of the summer, they were good. They had improved, and they didn’t have to decide whether they would go to practice every day.

The most stressful part is choosing to do it and setting it up. After that, you quickly adjust to the situation. Our clients rarely adjust the “automagic,” stress-reducing contributions to their investment accounts. And setting it up is easy. Just click the link, reply to this email, start a chat or call us!

How to retire at a younger age

By automatically contributing to retirement accounts, you might be able to retire earlier

Gary used to promise he would make those automatic payments. At every regular check in with me, he would say yes! But then he’d forget to complete the form. Something always came up. Gary wanted to check his budget, or look into how much he was tucking into his 401k at work, or wait until he was done paying off another bill.

Everything changed when Gary had a rough day at work. He thought to himself, “I have had enough!” so he called me and we ran the numbers. Gary saw that with even a modest monthly contribution, he could impact the likely success of his retirement accounts. For him, it was all about being able to retire as early as possible. And with a regular payment, boom! He was able to take two years of stressful work out of his life.

FAQs

Frequently asked questions

Should I contribute to a retirement account?

It depends. You can contribute to a retirement account as long as you are under the limits for your income tax bracket. For more information about this, visit our tax resource: https://www.assetsandincome.com/go-tax-free-life-insurance-roth-iras/

What are the benefits of increasing contributions?

Increasing contributions to investment accounts provides an increasing benefit over time. The more money you have in the account, and the more time it has to compound, the higher the investment account is likely to be over time.

How should I invest automatic contributions?

What you invest in depends upon your unique situation and financial plan. Generally speaking, the more time you have, the more money you want in equities, also known as stocks. Make sure to talk with your financial planner to choose the best investments for you.

I am already retired, should I still make automatic contributions?

If you are already retired, and not spending all your income, it makes sense to automatically contribute to your investment accounts. Your inheritors are likely to have a larger inheritance. Or, your charity is likely to receive more money if you automate your contributions today.

Should I contribute to a taxable account if my income is high?

If you are saving money, and you are in a high tax bracket, it makes sense to automate your contributions to your investment account. A person with a high income may be prohibited from contributing to an IRA, or other account. In that case, it makes perfect sense to contribute money to the taxable account.

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