Retirement Investing for the Lazy

If you know the importance of saving for retirement but want to spend as little time on it as possible, that’s not a bad thing, and this article is for you!

With this method, setting yourself up for successful retirement investing can take you as little as two hours per year. Here’s how you do it.

Figure out your “MAGIC NUMBER” AND IDEAL contribution.

Calculating your “magic number” or the amount of money you will want to retire is more of an art than a science, especially when retirement is a long way off. But luckily, the calculators below can help.

Note: If you haven’t started saving for retirement yet or are feeling very behind, don’t get too caught up with this number. When our goals get too large they feel impossible and we start to feel like there’s no point. That can cause us to put off starting. Starting small is okay!

Jargon alert: Other names you might hear for your “magic number” are retirement savings, retirement portfolio, or nest egg.

These calculators will also tell you how much you need to save each in order to retire at the level of income you want to earn. This is often called your retirement contribution. You’ll want to gather some key info for the calculators:

How much you already have saved specifically for retirement. Add up your retirement account balances.
Your desired income in retirement. This can and will change but you can adjust for this in the monthly expenses.
How much you are currently saving for retirement (as a % of your income). This will be a great starting point to see where you stand.

Here are some of my favorite calculators:

I like to use a few because they all use slightly different assumptions for things like life expectancy, interest rate, and tax rate (because who really knows what they will be?!). By filling out a few you can come up with a range for your desired yearly contribution.

You can then break it down by a percentage of your current salary to help decide what percentage to set up in your 401(k). For example, if I want to contribute $10K each year to my 401(k) and earn $100K in salary, I’d set my 401(k) contribution to 10%.

If your company offers 401(k) matching that you’re taking advantage of, you can take that out of your total contribution. Just make sure you understand the vesting rules. Sometimes we don’t get to keep our 401(k) match until we stay at the company for a certain number of years.

You can also break down the total yearly contribution by paycheck in a dollar amount. This is helpful if you don’t have a 401(k) through work and are saving in an IRA or outside a retirement account. If I’m paid every two weeks (26 times per year), I’d take $10K and divide by 26. I’d want to contribute $385 towards my retirement each paycheck.

You will want to recalculate this contribution amount each year in case your salary, living situation, or other important factors have changed.

Time it Takes: 45 minutes

Find a fund or couple of funds that fits your needs.

When it comes to actually investing our retirement savings, there are two general ways you can go: you can set up your own asset allocation or you can use a fund to do it for you.

Jargon alert: Asset allocation is just a fancy way of saying, your mix of stocks, bonds, and cash.

Target date funds

Now because this is an article on the best and laziest way to set up your retirement, I’m going to start with the easiest way first. Life cycle funds, also called target date or retirement date funds, are a great one-stop shop for retirement investing.

Based on your expected year of retirement, the fund makes sure your assets are allocated among stocks and bonds according to the risk associated with your retirement date.

As you get closer to retirement, the allocation becomes more heavily weighted in bonds.

The key to all investing is to look out for fees. This comes in the form of the expense ratio, or the fees associated with owning the investment. For example, if I have $100K in my 401(k) and I’m invested in a fund with an expense ratio of 0.5%, I’m paying $500 per year in fees. We don’t necessarily realize we are paying these fees or feel the pain of these fees because they come directly from our investment account.

When we’re investing in funds, expense ratios are inevitable but we want to choose options with low fees.

DIY investing

We can also set this up on our own using a stock fund and a bond fund. This is a good idea if your 401(k) doesn’t offer a target date option or it does but the fees are high.

A simple way to estimate your ideal retirement asset allocation for your age is to take 120 minus your age. You get the percentage you want to invest in stocks vs. bonds. For example, if I’m 30, I’d want to have 90% (120-30=90) of my retirement investments in stocks and 10% in bonds.

You can check this estimate against recommendations from an asset allocation calculator.

As you get older, more and more of your money gets invested in bonds. You can create this portfolio by investing in one stock fund and one bond fund. You want to rebalance or check in on your ratio each year. If you have too much in stocks (also called equity), you can sell some and buy more bonds, or you adjust your contributions going forward.

If you have multiple 401(k)s or retirement accounts, rolling them into one can make keeping track of your investment allocation easier.

Time it Takes: 1 hour

Make it Automatic.

Once you have all this great information, you can set up your retirement investing so that it’s automatic. Choose a percentage of your income to transfer directly to your retirement account or set up an automatic transfer to your IRA.

At the same time you will also choose your investments. You can invest in the target date fund or stock and bond funds of you chose above.

Make sure to check the box to have all your dividends reinvested so that you don’t have extra cash lying around (not growing) in your account.

Time it Takes: 15 minutes

Set a reminder calendar for next year.

Congratulations! You can now forget about your retirement accounts until next year. You can have peace of mind that you are moving towards your goals - AND it’s all happening automatically for you. Set a calendar reminder so you don’t forget to check in and go through these steps again.

If you are not investing as much toward your retirement as you’d like, set a calendar reminder for six weeks from now and see if you can up your contribution but 1%. Many 401(k) plans allow you to do this automatically so you are slowly inching your investments up.