<< Retirement Account Setup Checklist

A Small Step Can Go a Long Way

At the Growth stage, automatically funding your long-term savings may feel like a step too far.

Your limited dollars may be competing with priorities like paying off medium-interest debt (student loans anyone?), increasing the balance in your emergency fund, saving for a down payment on a home and more. It may be tempting to think, “I’ll fund my long-term savings and retirement but I don’t want to be locked into an automatic payment.” We understand this thinking. But we recommend you set up automatic funding anyway, even if for only a small dollar amount.

By taking the time to set up even a very small dollar amount of automatic funding, you will overcome two significant impediments to long-term saving and investing:

1. Not knowing what to invest in 
2. Not knowing how to set it all up

By completing this task now, you’ll ensure that you don’t delay for months or even years before making progress. And once your automatic investing is set up, when you’re ready to increase the contribution amount, it will be as simple as updating a single number.

How To Do It

Depending on your situation, you can set up automatic funding directly from your paycheck (for example through a paycheck withdrawal to your employer-sponsored 401k) and/or self-funding from a liquid cash account to a long-term investment account. We cover both options below.

Funding & Purchasing Directly from a Paycheck

1. 1. Find Your Account: If your employer offers a retirement plan (e.g. a 401k, 403b or similar), you’ve likely already set up your account when you were hired. If you’re not sure, reach out to your HR department and they can tell you where your account is. You may need to register your account if you haven’t already.
   2. Find Contributions: There will be a place on the brokerage account’s website for contributions. Find it.
      

      If you’re able, we recommend contributing 10 – 15% of your pretax income.

   3. Make or Adjust Contribution Percentages: Your contribution from a paycheck is almost always set up as a percentage, not a dollar amount. Additionally, even if you never set this up, it’s possible you already have a small regular contribution being made from each paycheck since many employers do this automatically on behalf of their employees – often 3%. If you can, increase this contribution percentage by at least a percent or two. A percentage to shoot for is 15% but do whatever you can.
   4. Other Steps: Depending on your account type or the institution it’s with, you may have to make specific investment choices. If you don’t see options for investment choices here, they are probably managed on the “Investments” or similarly named section on the site. It’s worth confirming what the investments are but in all likelihood some investment choice and regular purchases with your contributions is already set up – you shouldn’t need to do that on your own for most employer-sponsored plans. But of course, you can make adjustments to those investments as your plan allows.

Self-funding & Purchasing

Use this option if you either don’t have an employer-sponsored plan, or, for any other reason you want to set up your own account (e.g. funding your own Roth IRA is a common example).

1. 1. Determine Funding Account: This is the account you’ll use to fund your long-term savings. This is typically a savings or checking account, likely the same one you deposit your regular income to.
   2. Set a Transfer Between Accounts: From either your funding account’s website or your investing account’s website, find the section of the site for “Transfers.” If both your funding account and your long-term savings/retirement account are at the same institution, you can directly set up the transfer. If the accounts are at different institutions, you’ll need to set up an “external account” first. (Note: Sometimes the validation process of setting up an external account can take a day or two. If that’s the case, make a note here about where you’ve left off, and complete the next steps in this task below once that’s done.)
   3. Set Amount: Determine the amount you’ll want to transfer. If possible, try to save 10-15% of your pre-tax income. If that’s not possible, contribute whatever amount you can. Note that for those who are self-employed, lump sum contributions are more common, often on a quarterly basis. (This has to do with taxes paid quarterly and other factors that may affect how much can be contributed.) In this case, one strategy might be to set aside 10-15% in your business account (before transferring to a personal account) for a future lump-sum transfer to your retirement account.
   4. Set Frequency: This can usually be set for as frequently as once a week with varying options up to once a year. We recommend at least one payment a month. If you’re paid more frequently than that, set up a transfer for as often as you get paid.
   5. Set Start Date: You can set this for today or whatever day you want. Just remember that depending on your frequency setting, the day of the week you set your first transfer will determine the day of the week for future transfers. So choose a day of the week that works for you (e.g. perhaps a Friday if that’s the day you’re typically paid).

Make Investment Purchase

Now that you’ve set up your funding, you need to set up your investment purchase.

1. Set Automatic Investing: Somewhere on your investment account’s website there should be an option for “automatic investing” or something similar. Find this section.
2. Choose Your Investment Fund: This is where you actually choose your investment. To find more detail on how to choose an investment go here. But in all likelihood you’ll be selecting from a “no-load” and “no transaction fee” mutual fund or exchange traded fund (ETF). This is important because it will ensure that when you make your regular purchases, you’re not getting charged for each trade you make – something that would be particularly silly if you’re only investing a small amount to begin with. (Although in recent years many investment banks have eliminated many trading-related fees altogether.)
3. Choose Your Investment Amount: This should be the same amount as your regular funding transfers.(Note that some funds require an initial investment amount. For example you may need to contribute $1,000 for your first investment but regular additions can be whatever amount you choose. If you don’t have enough money to cover the initial investment, we recommend finding a fund that doesn’t require an initial investment or that has one that is low enough for you to quickly meet the threshold. Don’t let this initial investment derail your plans for automatically funding your long-term savings!)
   
4. Set Your Investment Purchase Frequency: Once you set your start date and frequency, you’re now set to automatically make your investment purchase!
5. Make Note for Future Changes: In the notes section (logged in users only), make a note indicating what you’ve set up, and where on your brokerage account’s website you did this. This will make it easier in the future to come back and adjust the contribution amount when you’re ready to make an increase.