No matter how careful and diligent you are with your finances, something important will eventually be forgotten. It could be a bill payment, or it could simply be overpaying for an impulse purchase. For me, it was investing for my retirement.
You heard it correctly. I failed to invest in a retirement account this year.
As you know, I quit my job several months ago. While I did transfer my 401k to an IRA and continued to manage my finances through my taxable accounts, I did not setup a retirement account now that 401k isn’t an option anymore.
At first, I thought about the different options (simple IRA, SEP IRA etc), and the complications delayed the decision. Then, it was the market downturn in February that pushed it back a few more weeks. After, the market upturn got me busy managing my much bigger taxable investment portfolio. Oh I needed to make sure I find the right stock broker, and that I pick the right type of account. I also need to make sure I put in the right amount every month, because too much money means I can’t use it as a down payment, while too little means I’m not taking advantage. Then..
Wait a minute… You know what these are? Excuses! Why does anything I said above change the fact that I needed to invest in a retirement account. Perhaps it’s beneficial to find the perfect amount to contribute every month, and it’s probably good to find the best stock broker to maximize the benefits. However, if investing immediately is better than waiting regardless of the choices that I make, isn’t it better to “just do it” already?
A Little Lesson Over Here
Regular readers know that I’m a huge believer in taking action. In fact, it’s more beneficial even if you end up making mistakes. Here’s an example. Let’s say you need to get from point A to B and the earlier you get to your destination, the better. If you start right away but end up taking one year to get to your destination, isn’t it better than spending one year to plan the route that takes one month?
Back to My Investment Procrastination
There’s really no point in beating myself about what’s already happened since the future is much more important. The good news is that even though I missed a few months of contributions, I can catch up by putting in a bigger lump sum. Sure, I already missed a good chunk of gains that my contributions would’ve had but in the big picture where I will be contributing for the next 30+ years, it’s not that bad.
What I Will Do:
- Open an SEP IRA account (TradeKing is a good choice and may not be the absolute cheapest like others. However, I feel better with them because of the lack of bad publicity.)
- Contribute $500 a month to the account and invest regularly
- Monitor the Pros and Cons of using this broker and see if I need to change brokers
I may end up not liking TradeKing, or find a better stock broker for this type of retirement account. I may find that the contribution is too high (or too low) for my needs. I might even find out that SEP IRA isn’t the best choice for my circumstances. However, what I won’t (and shouldn’t) do is wait around because investing in an account is always better than waiting.
You can always wait for the boat with the perfect route, but don’t wait so long that the entire trip ends up being meaningless.
- E*Trade IRA - Official Site
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{ 11 comments… read them below or add one }
Argh. I’ve made that mistake before too. Now I just keep things on autopilot.
Are you and your wife managing separate retirement accounts, or is that $500 a month going towards both your retirements? I’m wondering how actively you want to manage your spouse’s finances, but I suppose that’s a case-by-case issue.
My wife and I have separate retirement accounts (actually, I tried to combine them before but I was told that it needs to be separated by law). I do manage her retirement accounts but they are much more passive than my own.
The $500 that I’m talking about is for my SEP IRA, which is my own. My wife is still contributing to her 401k through her work.
I was the same way and intimidated by the sense of a retirement account and the lingo and terms that go with it and all the options. I learned the minimum basics and took action, but missed out on a few months. Being young figure I am still in a better position than most and a few months over 40+ years won’t hurt.
I think what you mentioned is very common, and hopefully what I wrote today will get people to take action. There was a colleague of mine that spent 6 years at the company I was working for without investing. He just kept putting it off so he really missed out on a ton of company matches, which must be in the low 5 digits I’m guessing.
I did this with my student loans for my MBA program. My last term is this summer and I misread an email about needing to re-apply. I thought I didn’t need to, turns out I needed to and the date it was due was May 8th.
Payment was due yesterday, and I missed that too (because I didn’t know my loan didn’t fund).
Since I’ve been reimbursed by my employer for my other classes, I just decided to pay for it out of pocket… but waiting almost caused me a bunch of headache because if I was too far they would drop me from the class. Oops.
I should have started investing earlier. I’m 25 now, so I suppose it’s not too late. I like you, have often come up with excuses but will now open one up by the end of this month.
I always used to forget to pay my student loan bill until I switched to automatic payments. The reason I never did this in the first place is because I used to not have enough money to cover my automatic payments sometimes, and that habit has stayed with me.
Why wait till the end of this month? Do it now, because later is always too late.
Ok – so we are all guilty of this somewhere along the way – and hopefully one learns from one’s mistakes.
Now – one of my favorite sayings…. “Mitigate the damages.” Minimize the future losses in some way. While you cannot make up the contribution to the IRA, you can still do something to make up for that lost investment. You could invest in something of an equal amount of money – such as tax free bonds, or munis, or something that you are comfortable with that has minimal taxes involved… While this will not ever make up for the IRA contribution that you missed, it WILL (hopefully) grow in value as an investment and you will have it available for retirement later – OR you could use it as a part of your down payment later, which would also be a way to invest in your future.
It’s a way of making up – in part – for the mistake. A way of gaining something monetary from the lost opportunity. A way of lessening the loss in future earnings and investment growth. It’s the closest you can come to having made the IRA in time.
That, plus make sure you get it right this year
Good post! Great reminder.
I recently just opened up my discount brokerage account, but I was planning on doing it in Jan/Feb.
Had I done it then, I would have been able to buy stocks when the market hit bottom.
Oh well. I guess everyone has 20/20 hindsight.
Great Blog! Would you be interested in mentioning a movie about Stock Market Manipulation that is coming out on June 10, 2009?
Please check out the site and movie trailer at stockshockmovie.com
It has been a really fun project and will hopefully help thousands of people to protect their investments!
Movie is called: Stock Shock!
All the best, S