Dear Liz: I started a new job, but unfortunately it does not offer a 401(k). I have an IRA but don’t contribute to it. What is the best way to contribute so I can discipline myself in saving for retirement? I am 47.
Answer: The best way to save for retirement is to leave the issue of discipline out of it. If you have to discipline yourself to make the right choice every paycheck, you’ll wind up spending the money rather than saving it.
Instead, put your savings on automatic. You can contribute $5,500 year to your IRA. Divide $5,500 by the number of paychecks you get in a year and set up an automatic transfer of that amount. If you’re paid every other week, for example, you would divide $5,500 by 26 paychecks to get $211.54, which is the amount you should have transferred into your IRA every two weeks.
If you can save more, then open a regular brokerage account and set up automatic transfers into that. You won’t get a tax break for your contributions, but if you hold your investments for at least one year you’ll qualify for long-term capital gains rates that are lower than regular income tax rates.
Once you’ve set up these transfers you need to keep your hands off the money. Don’t treat your retirement funds as emergency cash or tap into them for any other reason. You’re getting a late start and you’ll need every dollar you can save if you want a comfortable retirement.