How to Set Up an Automatic Investment Plan for Your Retirement

Automatic investment plans help you save for retirement by putting your investing on an automatic schedule, thereby saving you time every month so you don't have to plan for them. The funds you save build up over the course of years -- even decades -- without you needing to remember to save. Automatic investment plans are very popular among retirement investors. The main thing to remember is to always have money in your account when the money is deducted from it.

Difficulty:

Moderate

Instructions

1. Determine an amount of money that you can comfortably set aside each month. Be sure that you can afford this amount and that you can live without it until retirement. Many retirement accounts require a minimum for automatic investments, such as $50 or $100.

2. Choose an investment account to receive the automatic deposits. Investments with high growth potential usually provide the highest returns, which you will need to fund your retirement years. Examples of such investments include growth stocks and growth mutual funds. As these investments are relatively volatile, learn the risks of investing in them.

3. Contact an investment advisor or financial planner for advice on investments if you do not understand them thoroughly.

4. Establish the automatic savings plan. If you are just setting up an account for the first time, there is usually a section for automatic plans on the account application. You will need to divulge your financial institution, the account from which the funds will be withdrawn, the account number and, in the case of checking accounts, the routing number. If you have an already-existing account, you must contact the company by phone or online for a special form, sometimes called an optional account services form.

5. Select an account from which your funds will be taken each period. Checking accounts and savings accounts are popular choices. You will need to either meet with a teller in person or speak to one over the phone to get the account set up for periodic withdrawals.

6. Plan for a method by which you will withdraw from your retirement account when retirement arrives. Options include lump-sum payments and withdrawal plans. For the latter, you can have a certain amount of money withdrawn or a certain number of shares in the case of stocks and mutual funds redeemed for cash and sent to you.

Tips & Warnings

• Review your plan at least once a year to determine whether you will have enough to support you in your retirement years. Adjust as needed.

• Change the amount you set aside each period if need be. You will need to contact the custodian of the retirement account to do this; they will either assist you over the phone or have you fill in a form and mail it to them. You might also have the ability to make the change online, if you have access to your account that way.

• Consider how much of your account will need to stay intact during your retirement years to continue providing income to you.

• Investments are not guaranteed to perform at any certain level, nor are they insured against poor market performance.

• Consider the role of your health in estimating your lifespan. If you can reasonably expect to live thirty years in retirement, reduce your withdrawals from your retirement plan. Make extra deposits into the plan if you get a tax refund, an inheritance, or some other kind of payout.

References

• Dummies.com: Establishing Automatic Investment Programs for Retirement

Resources

• American Century Investments: Use Automatic Investing to Save for Your Goals