You’ll finally save for retirement, I’ll finally cut down on the drinks, et cetera. Sounds just like… oh, right, last year’s New Year’s resolutions. When it comes to resolutions, especially those surrounding your money, my two cents on how to make resolutions that actually work goes something like this:

Don’t resolve to achieve the goal, resolve to do the things.

I’m saying you can have the goal, but I don’t much care about it, because if you don’t actually commit to the steps you need to take, you’ll wake up in 2017 in the same crappy situation, wondering why you didn’t fix it. Retirement is a long way off; it’s already a pretty nebulous thing that people can easily deprioritize. Don’t add to the temptation by hitching your star to a vague “resolution” that will gather space dust until June.

Admittedly, this strategy isn’t easy, especially when one of the hardest things about personal finance seems to be getting simple answers to simple questions (like, “where do I start?”). This in mind, I will help you by supplying the steps you need to achieve three common retirement goals. So take a skim below, and if one of these questions applies to you, resolve to take those steps: set a deadline this month and create a post-it note, make a calendar invite, draw on your hand, tell your mom – whatever it is you do to make an appointment you intend to keep. Then sit back and let 2016 be the year of prosperity. (You can check back in four months to see if I’ve cut back on the drinks.) Happy New Year’s!

Your Goal: Take advantage of my company’s 401(k) – finally.

Your Resolution: You’re going to open this account and start investing, the easy way. Success! 

1. Get the following key information from your HR team:

  • Terms around opening a 401(k), e.g., do you need to be a full-time employee for X-months beforehand and are you eligible
  • Terms around your company making any contributions, e.g., matching donations up to $Y amount or a flat deposit after Z months
  • The institution that runs your plan, e.g., Schwab or Transamerica
  • Contact details for a rep from said institution who runs your company’s plan

2. Pick up the phone and call that number. Now for the “choose your adventure” part…

2a. If you’re someone who knows about asset allocations, get the following info from that rep:

  • What your 401(k) can invest in, i.e., the list of stocks, bonds, funds, etc. that you can put your money in
  • The expense ratios for those accounts and/or where can you find that info

And then make your decision on where to invest, ideally allocating about 10% of your salary to your 401(k) and about 90% of your contributions to stocks and 10% to bonds.

2b. If you’re someone who isn’t comfortable with asset allocations, have the following conversation with that rep:

  • “I want to invest in about 90% stocks and 10% bonds. If you have a target date fund, for the year in which I turn 65 or so, I can probably take that option. If not, when it comes to stocks, I mostly want safe, large cap stuff, to the tune of about 80% of my portfolio, with 10% in international stock that might earn more. For bonds, I’m more or less neutral on whatever bond fund you have – something basic. I do not want any investments where the expense ration is more than 0.50%, though I might inch higher (around 0.70%) for the international investments portion of my stocks. Now, whether it’s a target date fund or a stock selection, what can you do for me?”

And then work with the rep to follow one of these two paths to set up your account, be it the target date fund or the manual asset allocation route.

You want to ideally put at least 10% of your savings each month into your 401(k). If they ask about the Roth, say no for now because that creates a slightly great level of complication than the very basic* setup I’ve given you here.

Your Goal: Save for retirement (though I don’t have a 401(k) option).

Your Resolution: You will be opening a Roth IRA or traditional IRA – congratulations! Your steps are as follows.

1. Check your income against the limits for the Roth IRA. If you are in range (hint: under $116,000 if you’re a single tax filer for the full thing, under $131,000 for phased out contributions), open the Roth. If your income is higher, go traditional.

  • Know that the annual contribution limit for both options is $5,500, so that’s what you’re putting in for 2016 (an awesome start!).

2. Review your finances and determine how much money you have (really) to open an account now. Depending on which institution you choose to go with, you will need to meet a different minimum contribution amount in order to open your account.

3. Pick your institution, call’em up, and say you want to open the account chosen above. Because we are being brief and task-based here, I will simply tell you my favorite two institutions so you can take the next steps…

3a. If you have $1,000 or more, call Vanguard and tell them you want to open up your account. Hooray! Get the rep to do the work for you, e.g., setting up as much as possible over the phone, directing you to whatever electronic things you need, etc. No matter what Vanguard fund you invest in, you will have helpfully low fees, so you can pick almost any stock-based fund as long as you don’t just keep your money in the standard money market. For the sake of simplicity in this article, without sacrificing quality of investment, go with a Vanguard Target Date Fund for approximately the year you turn 65.

3b. If you have between $300 and $1,000, call TD Ameritrade and tell them you want to open up your account. Explain that you have $X and want their help on which funds are available at that level. (They might well tell you to use their mutual fund scanner, in which case get whatever instructions you need to make that a realistic tool for you to use.) Go for the lowest expense ratio possible, ideally under 0.50%, on a stock-based fund. Note that TD says there’s no minimum to open an account, but the things you’ll invest in all have minimums besides the useless, default money market account, which is why I say have at least $300 on hand. The last time I checked, this was enough to get into an account.

3c. If you don’t have $300, what are you doing, man?! By which I mean, you need to return to your budget and eke out at least this much. You can’t just save pennies and expect Benjamins, and considering that we should all be putting in more than 10 times this amount annually, $300 is a pretty fair deal.

Then e-sign the paperwork and bask. You’re in great shape.

And finally, the big one…

Your Goal: Start saving for retirement, period.

Your Resolution: There are two routes available: Sign up for your company’s 401(k) if available. See above. Or, if not, sign up for a Roth IRA: See above.

happy new year retirement savingsCheers to you. Here’s to hoping you can afford this awesome hat when you’re my age.

In conclusion, we have a long-winded article with components that, when tailored to you, hopefully offer you the tactical basics you need to make strides on your retirement goals in 2016. Note that as I write more content on each of the concepts here, I’ll update this article with links so that you can learn more of the reasoning behind these basics.

Did I miss something? Leave a comment with your question and I’ll happy fill in the blanks!

*Note, this is far from the only way to open a 401(k) and it’s not necessarily the best if you want to be more thoughtful around allocations, etc. I will cover 401(k) options more in a later post so that you understand the logic behind the suggested conversation with the rep. The main thing to know is that following this very basic formula certainly won’t hurt and will accomplish the goal with baseline effectiveness (at the least). If you set up your 401(k) like this and left it for 10 years, you’d probably be fine.