By Felipe

A few days ago I was talking to a friend who is about my age (31) regarding what we’ve been doing here at Boulevard R, and he told me he simply did not have the time to review all the 401k literature and paperwork his employer sent him. Of course I told him that he just needs 10 minutes to get a personalized plan using Boulevard R’s software (shameless plug, I know), but I do understand his pain.

The problem is that while he thinks about setting up a plan, he is actually losing money. In fact, you are probably losing money right now, as you read this very blog! Let’s say your employer matches 50% of your contributions up to 3%. If you make $65,000, that’s $1,000 of free money that you are leaving on the table. That may not sound much, but your contribution plus your employer’s match on that year alone would give you around $84,000 over 35 years! And you are losing money even if your employer does not match: If you would deposit a mere $100 every month for the next 12 months, in 35 years you would have around $34,000.

So, while you digest that 200-page booklet HR mailed you, you can do one of the following NOW:

• A) If your employer offers a retirement plan, call your HR department and ask them how much the company match is (that is, what is the maximum amount your company will deposit in your 401k account to match your own contribution — in other words, free money!). Then simply call the 401k provider and set up an automatic contribution directly from your paycheck.
• B) If your company does not match your contributions, you should still start saving NOW! Just pick a reasonable amount, even if it’s low (how about $100 to start?). Your company might not be giving you free money, but our goverment does — You are not paying taxes on that money until you retire, meaning that you keep the interest for yourself!
• C) If your company does not provide a retirement plan at all, call your current bank and find out if they offer an IRA. Ask if they charge any fees, and if they do, tell them good bye and say hello to one of the many service companies with low or no IRA fees (Vanguard and Fidelity, among others). Then set up an automatic contribution as explained above.

Now the next step is to decide how you want to invest the money you are saving. The good news is that financial companies recently made it easy for people like us to save, and now they are offering something called lifecycle funds: These are “funds of funds” where you just pick a fund based on your retirement year, and then they automatically balance the portfolio based on the risk tolerance according to your age (meaning that they will start investing your money on funds that are riskier but with potentially higher gains, and they will automatically move it to more conservative funds as you get older). The downside is that they do charge for this “service”, but it is not that bad if you think about the money you are losing by not saving anything. Vanguard Target Retirement Funds and Fidelity Freedom Funds are reasonable choices, but there are others. Then, later on you can go DIY and design your own portfolio… Or, if you are lazy like me you may decide to just keep your money there (no problem with that, either).

In summary, if you do not have the time to set up your retirement plan right now, that’s ok. But start contributing NOW!