Top Ten Reasons to invest Automatically Each Month in Your Retirement Account
By Peter Cole, LCSW, ChFC
A great way to build up your retirement savings is to invest automatically each month into your retirement savings account. Before you take care of your other bills, make it a -top priority to put something away for your future in a tax advantaged account. FUND YOUR FUTURE FIRST! Here are the top ten reasons to invest automatically.
Investing automatically each month is easy to do, and you can’t forget when it comes automatically out of your paycheck or checking account.
You put the Time Value of Money to Work for you when you continue your automatic investing over time, using the power of compounding over time to help your money grow.
Through an automatic investment plan, you take advantage of dollar-cost averaging by arranging for a specific sum of money to be deducted directly from your bank account or paycheck on a regular basis. Since the amount deducted remains constant, your money will buy more shares when the fund's price is lower and fewer shares when the price is higher. Over time, this generally reduces your average cost per share and plays an important role in helping you reach your financial goals simply and conveniently. (A dollar-cost averaging plan does not assure a profit and does not protect against loss in declining markets. Investors should consider their financial ability to continue their purchases through periods of low price levels)
If you were 30 years old, you were to put $333 dollars into your 401(K) each month until you retire at 65, and your account were to grow an average of 7% per year, it would be worth $649,878. That’s a nice nest egg. If your were to put $600 per month into that same account from ages 30 to 65, it would be worth $1,169,781 at age 65!
You will reduce your taxable income when you invest in pre-tax retirement account.
It feels good to know that you are preparing for your future.
When you invest automatically in a tax deferred retirement account, your money grows without having to pay capital gains and dividends taxes. This makes a big difference. Let's look at a hypothetical example, If you were 30 years old, you were to put $500 dollars into your 401(K) each month until you retire at 65, and your account were to grow an average of 7% per year, and your marginal bracket was 25% your account would be worth 974,817 at age 65. However, if you did all of the above, but invested in a taxable account, your account value at age 65 would be over $300,000 less: $646,984. Of course rates of return are not guaranteed and actual results may vary.
Automatic retirement investing helps to put you on a realistic budget. You need to prepare for your future, so it is to your benefit to take your retirement savings off the table right from the get-go each month and live within a budget that invests wisely in your future.
Most mutual funds will allow you to reinvest your dividends, so that money can stay invested.
You will thank yourself when the time comes to retire.
Remember, the best time to start investing automatically is ten years ago. The second best time is now.
Peter Cole provides holistic financial planning for people seeking prosperity. Author: True Self – True Wealth. FREE "The Money Coach Says ..." or “True Self – True Wealth Monthly Tip” www.TrueSelfTrueWealth.com. Peter Cole is a representative of Securities America, a registered Broker/Dealer member NASD/SIPC & Securities America Advisors, an SEC registered investment advisor.