On a recent episode of the Money Mastermind Show Andrew Meadows from BrokenEggsFilm.com came on to talk about how for most folks the idea of retirement is broken.
In the past we've all relied a multi-pronged approach in order to have a comfortable retirement, one that included Social Security and a company pension to supplement our individual retirement savings.
Unfortunately Social Security is no longer a sure thing, and pensions are becoming harder to find (and when they're available they're often underfunded). More and more we're realizing that we're going to need to fund our own retirement out of our own pockets.
The problem is that far too many of us are not saving enough.
According to Center for Retirement Research at Boston College Workers are estimated to be $6.6 trillion short of what they need to retire comfortably. The Employee Benefit Research Institute found that 48% or workers of all ages had less than $10,000 in savings for retirement.
For most people retirement is grossly underfunded. We need to start saving. So where do we start?
How about making your retirement savings automatic?
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Making Retirement Savings Automatic Helps Increase Savings
By making contributions to retirement accounts automatic, you'll find that you'll think about it much less and end up saving more. When it's automatic, there's no pain point to making the decision to invest every month, it just happens.
Data for 2013 from Aon Hewitt show that average participation rates for employees at companies with auto-enrollment in retirement plans was around 85 percent. While people with auto-enroll retirement plans are able to opt out, when it is made automatic more people are willing to move forward and just save.
I believe the same goes for our individual savings for retirement. If we make things automatic we're going to be saving much more because it's easier to just allow savings to happen on schedule, than to consciously opt-in and save manually every month. When contributions are happening without our intervention, they're much more likely to happen.
Betterment SmartDeposit Makes Savings Automatic
Betterment knows all about the statistics when it comes to how few of us are actually saving and investing, and saw the potential to create a solution.
They recently released their new savings and investment tool called SmartDeposit. What is it? In a nutshell SmartDeposit takes any funds over a maximum balance (that you set) in your checking account, and invests them for you. No more extra cash laying around in your checking waiting to be spent. Instead the money will be invested automatically via Betterment.
So it works like this:
- Set a ceiling balance for your checking account. (example: I never want more than $5000 in my checking account)
- Set a maximum deposit amount. (example: I want Betterment to invest no more than $500 at one time.)
- Set it and forget it.
Once you setup SmartDeposit Betterment will check your checking account at least once a week for excess cash above your ceiling amount. If it finds excess cash in there it will invest it up to your maximum deposit amount.
SmartDeposit will take into account any upcoming scheduled deposits in the next 30 days, and will subtract those from your current checking account balance.
When it is triggered SmartDeposit will also give you the option to skip any deposit – for example, if you have extra funds in the account to pay for an expected expense.
Finally before the deposit goes through SmartDeposit will check your balance again to ensure that you still have the excess cash in your account.
Here's a quick rundown on this new Betterment feature, from the Betterment team:
How To Enable SmartDeposit
If you're already signed up for Betterment, you can turn on SmartDeposit at any time. Here's all you need to do:
- Login to your account and go to the “Transfer” tab.
- Click on the “SmartDeposit Off” button for the account you want to link to SmartDeposit.
- Follow the step-by-step setup guide to link your checking account.
A couple of things to note before you enable SmartDeposit. First, it can only be linked to a taxable account, no IRA or Roth IRA accounts can enable this feature.
Second, only certain banks are compatible with this feature currently. To see if yours will work you can begin the process of enabling SmartDeposit and it will tell you which banks are currently compatible (the list will change as more become compatible).
Once you confirm your settings and complete the setup process, SmartDeposit will enabled and will start checking your account for funds to invest.
Making Saving Automatic
Making saving automatic can be a great way to increase your savings. Take away the human element of saving and investing, and it becomes so much easier.
While Betterment's new tool isn't perfect, I think when used in conjunction with their existing automated scheduled deposits, it can greatly improve your odds of saving enough for your retirement future. It's definitely worth a try. If you've already got an account, it's a no brainer to give it a try.
Open an account and check out the new SmartDeposit feature today.