Using Automatic Investment Programs to Help Build Your Retirement
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Using Automatic Investment Programs to Help Build Your Retirement
Retirement plans are very popular choices for automatic investment programs because they can help the retirement savings build up over the course of many years, often decades. Many investors find that they sleep better at night because the burden of remembering to keep adding to their accounts is taken care of for them through automatic withdrawals. The potential steady buildup of money, especially if compounded, should provide a noticeable growth in retirement wealth. In addition, many employers provide matching funds for employer-sponsored retirement plans, hopefully increasing the chances that savings grow even faster. You can build retirement plan funds through automatic investment plans via a sponsored retirement plan such as a 401(k), 403(b), or 457 plan, or on your own with a traditional or Roth individual retirement account (IRA). Regardless of how you deploy your automatic investment program, remember that they do not assure a profit or protect against loss.
Things To Know
- Retirement plans are very popular choices for automatic investment plans.
- You can also use an automatic plan for withdrawing money periodically from a retirement account once you retire.
Popular investment vehicles
If your investment strategy involves seeking maximum growth, you may benefit from investments with higher risk profiles, because risk and return are generally correlated (though exceptions do occur). Over the course of years or decades, the ups and downs in the market can smooth out and may result in a lot of growth. Investments commonly used in retirement accounts include stocks, bonds and mutual funds. Some investors like to invest in real estate, either in individual properties that they can rent out and receive income from or via real estate investment trusts where a large company invests in many real estate properties and passes on the returns to investors.
Review the risks of investing to help you determine which investments are appropriate for you.
An illustration of the potential power of time
The chart below shows how a tax-deferred, compounded retirement account can grow with about $416 deposited each month (for a total of $5,000 per year). Even if you didn’t start saving until later in life, it is possible to build up a respectable amount of savings, courtesy of compounding and long-term growth.
Use them in the reverse manner in retirement
Automatic plans are also available for withdrawing money periodically from a retirement account once you retire and need to spend those funds. In this case, it works in the reverse manner—funds are taken out of the retirement account and automatically deposited into a target account, such as a checking account or money market fund.
