In response to my most recent post, “Give ‘thoughtomation’ a try,” I received this helpful idea from a reader:
“Why don’t you post a spreadsheet with comparisons of saving early vs saving late in life? That is the most important thing young investors need to see.”
Yesterday, I pulled up to an automated teller machine (ATM) in my automatic-transmission car, opened my automatic car windows, and withdrew cash that had been automatically deposited in my bank account on payday. I then used some of the cash to take my car through an automatic car wash, and when I arrived home, I used the automatic garage door button to close the door behind me. Then I walked into the house just in time to hear the dishwasher beep to let me know it had automatically shut off after automatically drying my dishes. (I just wish it would automatically empty itself.)
We live in a set-it-and-forget-it world, and in most cases, the convenience of automation is fantastic. But, when it comes to money, I’m a proponent of thoughtful automation, or “thoughtomation.” What I mean by thoughtomation is simple: Use automated investment and payment systems, but keep track of them and routinely reassess whether they’re working well for your financial goals. In other words, when it comes to your money, set it, but don’t forget it.
In the past, I have expressed frustration with the financial press’s coverage of investment topics (Clearing the air on target date performance), and I’ve also blogged about how I feel investors are best served by ignoring financial pundits (Listening to the markets—not the pundits).
But occasionally, a fleeting glimpse of a longer-term, clearer reality is visible beneath the smoke and ashes of the “financial catastrophe of the week” featured in the headlines. It’s worth pointing it out when it happens—such as in the article Mixed emotions on our anniversary, which ran in the September 11 edition of the Wall Street Journal. The article offered a real-life example of what a long-term investment strategy can mean for an employee who makes a biweekly contribution of $250 to their 401(k) and gets a $125 employer match.
When the stock market sells off, as it did in late July and early August, there is an inevitable surge in commentary on the riskiness of U.S. retirement accounts. The main worry is that retirement investors are taking on too much risk and that retirement assets should be invested in “safer” securities or programs.
From my perspective, many such criticisms seem unduly focused on the short run.
If you haven’t saved enough for retirement, one possible solution is working longer. But a new report by the Employee Benefit Research Institute* paints a somewhat bleak view of the benefit of doing so. The study suggests that if you haven’t saved enough in your working years, even working into your 80s won’t help.
It’s another “retirement blues” story—even working longer, a widely-touted strategy, just won’t help.
