Put investment on autopilot to start saving

Your Money staff reporter

You can put almost any task on autopilot: making the morning coffee, driving on a stretch of highway and paying bills.

Automatic investing also could become commonplace, especially for twentysomethings.

A study last month by Prudential Financial Inc., a financial services firm based in New Jersey, found that 66 percent of workers ages 21 to 30 would like to be enrolled automatically in a defined-contribution plan at work, such as a 401(k) or 403(b).

The same number of young workers also favored having their rate of contribution increased automatically every year, as well as have the asset allocation--the mix of stocks and bonds--adjusted for them.

Granted, Prudential, which manages 401(k) plans, has an interest in seeing more people contribute to retirement plans.

But the study indicates that young workers understand the importance of saving for the golden years--and that they may need a little help doing it.

"They've seen [from the generations in front of them] that the traditional do-it-yourself approach isn't achieving the retirement security needed," Deanna Garen, senior vice president of strategy and planning at Prudential Retirement.

"They want to be in an autopilot program that's making decisions for them so they don't have to worry about, `Gosh, do I really know everything I need to know here?'

" she added.

A federal law passed this summer makes it easier for companies to put a 401(k) or 403(b) plan on autopilot for workers. In fact, in a separate survey in October, Prudential found that 87 percent of companies for which it manages 401(k) plans were interested in adopting automatic features.

If your employer doesn't yet, here's how to make investing for retirement as effortlessas possible:

-- Sign up for your 401(k) today

The advantage of participating in your employer's retirement plan is that the money comes out of your paycheck automatically before you get a chance to miss it.

And thanks to the power of compounding, the more time you have to invest, the less money you need to put away.

Say, for example, you shuttle $40 every other week to your employer's retirement plan for 40 years. Assuming your investments earn an 8 percent return annually, you'd accrue nearly $270,000 by the time you're ready to retire.

Wait a decade to start making contributions, and you'll have to sock away more than double the amount each paycheck to get the same sum.

"You can't recover money that you kind of just toss away when you're young," said Mel Lindauer, a fan of index mutual fund advocate John Bogle and co-author of "The Bogleheads' Guide to Investing" (Wiley, $24.95). "You can't because you miss out on compounding."

-- Invest in a target-date retirement fund

If you need help allocating your investments, consider a target-date retirement fund.

Here's how it works: You pick a fund whose date matches when you want to retire, such as 2030 or 2040. The fund invests in bond and stock funds based on that retirement date, automatically adjusting the mix so that you don't carry too much risk as you get ready to retire--or invest too conservatively when you're just getting started.

In other words, it's a way to have professionals manage the portfolio for you without having to pay the steep costs. Plus, more employers now offer this type of fund.

-- Don't worry if you're not a pro

Finally, some young workers wait to jump into the market because of inexperience.Don't let the market intimidate you.

Lindauer retired at age 59 and said he "lives well." He chalksup his good fortune not to being a pro investor, but to starting early, thanks to a college friend who became a broker.

"I made every mistake, from paying high loads [sales charges] to picking lousy funds. But I kept sending the money in," he said. "Just the fact that I had the market working for me for that long period of time really worked in my favor."

Lindauer now tries to help investors young and old avoid the mistakes he made. He is a leader on the popular forum "Vanguard Diehards" on (

There you can pose questions to Lindauer and other investors for free.

E-mail Carolyn Bigda at

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