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7 Simple Saving Secrets Every 401k Investor Should Know

February 05
01:51 2013

I must have gone through thousands of retirement analyses through the years. When I was younger, looking mostly at younger people, what I saw scared me. Retirement, this great nebulous beyond, seemed almost a fantasy land. It lay beyond the horizon, 236495_9622_military_secret_stock_xchng_royalty_free_300unseen, unknown and unimaginable. Saving for it, on the other hand, appeared to most – me included – like a large twenty-ton boulder. This “saving for a retirement” was an obstacle far too obstinate for a mere mortal to tackle.

At least not then. Not in the 1980’s. Not during the period of the vanishing (and now extinct) pension plan. No, our parents had it easy – they had the best of both worlds. They had the guarantee of a fixed pension and they had the lavish promise of private retirement accounts. What I saw before me was Mount Everest compared to their Pike’s Peak. The older generation could merely latch on to the vehicle of their company’s retirement fund and drive to the summit of retirement success. The younger generation faced sheer cliffs that required individual effort to surmount.

Again, the pure size of the mission dwarfed the confidence of the average twenty-something year old.

Yet, despite the onus of this burden, we heard repeatedly this mantra from our experienced elders: “Every great journey begins with but a single step.” In addition to this philosophical tidbit, we had a guidebook of a handful of simple savings secrets. They were so simple they defied belief. Indeed, some young skeptics, too cool to bind themselves to someone else’s ideas, opted instead to live as if the world would end tomorrow. For a lucky few in that group, it did. For the others in that cohort, they soon learned the price of hedonism.

But for the rest of us, those willing to take those single steps, we find ourselves nearing the end of a rainbow our entire life told us could never exist. And yet it does. Within our very real grasp sits a pot of gold, the fruits of our life’s labors, the milk to our retirement shake, the one thing that guarantees us comfort in our remaining years. And, to think, it all started with that fistful of simple savings secrets we almost tossed aside.

What are these simple savings secrets? Why do they work? And How can you take advantage of them? We each have our own shorthand for these secrets. How we refer to them depends on our upbringing, our education and, to some extent, our own personal values. As Chief Contributing Editor at, I’ve had the honor to speak with hundreds of financial professionals from all across America. This has given me a chance to taste the different flavors of this same sauce of success. No matter what the spices the cook uses, the cuisine pleases the pallet, which in this case, really means the wallet.

Without further ado, here are the seven most important simple savings secrets every 401k investor should know.

#1: Make a Commitment. The best way to commit yourself is by stating a specific goal and then coming up with a plan to attain that goal. Mitchell D. Weiss has taught as an adjunct in the Economics & Finance Department at the University of Hartford’s Barney School of Business in West Hartford, Connecticut. He believes it’s important to “start by establishing the objective of the money (in this case, retirement).” The plan need not be elaborate. In this case, it can be as modest as “saving.” The point isn’t the precision, it’s simply the fact that it’s easier to plan for an event (like retirement) if you start earlier. Elle Kaplan, CEO & Founding Partner at Lexion Capital Management LLC in New York City, says, “Planning for retirement should begin decades before you plan to retire.”

#2: Spend Less Than You Earn. It seems so obvious, yet this savings secret often evaporates once one graduates from school. As a student, money is tight and – not counting student loans – cash flow represents a very real thing. Financial discipline isn’t just second nature, it’s the law of the land. After all, you can’t spend it if you don’t have it. Once schools unleash their graduates, the pent up demand spews out. Give a young graduate a credit card and see what happens. Ilene Davis is a financial planner at Financial Independence services in Cocoa, Florida. For her, the first simple savings secret is “spend less than you earn and invest the difference.” Tim Shanahan, President and Chief Investment Strategist at Compass Capital Corporation in Braintree, Massachusetts, agrees with this simple savings secret. He tells his clients to “live on less than your means allow.”

#3: Pay Yourself First. Here’s another deceptively simple secret. We often have to priority, and too often we sacrifice our own needs for the needs of others. When it comes to saving for retirement, not only is it OK to be selfish, but your very survival may depend on it. Remember, you’re alone on that sheer cliff. You can’t count on anyone else. It’s your responsibility alone. Do yourself a favor. Pay yourself first. Karen Lee, owner of Karen Lee and Associates, LLC in Atlanta, GA, has been a financial planner for twenty-five years. She’s spent most of that time helping people save for retirement. She advises her clients to “save first over all other purchases, as if it was a bill you owed.” Shanahan says, “pay yourself first – make room in your budget to save for retirement before the discretionary spending.” Kaplan tries to help clients avoid getting tripped up by the savings secret. She warns “Focusing on budgeting and penny-pinching is not the way to think about saving. Think of it as paying your future self. You can’t afford not to. Paying yourself should be an automatic first priority, just like any other bill.”

#4: Start Early. It’s funny. A lot of young savers get tripped up worrying too much about investment choices rather than simply starting to save. (The “paradox of choice” and how it causes decision delays has been written about extensively.) In reality, it’s better to just start saving with no undo emphasis on investing. “It’s about time, not timing,” says Davis. In other words, time heals all poor investment decisions, so the early you start saving, the less critical investment performance will become. Lee says, “Save young.” She points out “the money you saving in your 20s and 30s is your most valuable savings in your 60s.” Eric Heckman, President of  Worry Less Wealth in San Jose, California, says, “Start now-something-anything.” Kaplan says, “Make it easy and automatic: set up a regular transfer to occur as soon as your paycheck hits your account that deposits the money directly into your investment account.”

#5: Save Money By Using Tax-Deferred Savings Vehicles. Almost everyone has heard of the 401k or the IRA. The government allows you to skip out of paying taxes this year for any contribution you place in these vehicles. Of course, you’ll still have to pay taxes when you finally take the money out of these accounts, but, hopefully, you’ll be in a lower tax bracket then. More importantly, you can actually increase your net take home pay (including the amount you save in these tax deferred accounts) by saving in retirement plans. Tara L. Mashack-Behney, Director of Investment Consulting at Conrad Siegel Investment Advisors, Inc. in Harrisburg, Pennsylvania, explains why this is so. “Federal income taxes are not withheld from regular 401k contributions,” she says. “So for example, a $100 contribution may only cost you $85 in take-home pay. (However, your actual deduction may be more or less depending on your income tax bracket, number of withholding allowances, etc.).”

#6: Always Grab the Free Money. When a company offers to match any contribution you make, take full advantage of that match. Shanahan combines an earlier savings secret with this one when he says, “Save early – as soon as you have a job – and take full advantage of employer matching.” Bouchand also says to “take advantage of employer matching in retirement accounts. Don’t leave money on the table.”

#7: Now Save More: There’s always a way to save a little more. Lee puts it succinctly: “Save a lot.” Heckman adds a little more color when he says, “If your plan has an auto-escalating feature, use it. If not, put a note to increase every year.” Kaplan is downright specific. She says, “Everyone should aim to save a minimum of 20% of every paycheck.” Rachele Bouchand, Director of Financial Planning at Clark Nuber, P.S. in Bellevue, Washington, has a very insightful way to explain the advantages of saving more. She says it “benefits you two ways: you have money you can use in the future and it forces you to live on a lower standard of living now. It’s hard to decrease your standard of living in retirement if you’re used to a higher one in your working years.”

It’s amazing what following these seven simple savings rules can lead to. Now that I’m older, I can see firsthand how following this sage advice has helped not only me, but many others like me. It’s amazing, but true.

And to think, it all started with one small step.

If you’re still not convinced you need to start saving right now, I’ll let Stanley H. Molotsky, President & CEO at SHM Financial in Philadelphia, Pennsylvania have the last word. “You have to do it and do it now,” says Molotsky. “You might want to wait for government programs to help,” he adds, “but government programs may not be there in the future, so you have to do yourself.”

Interested in learning more about this and other important topics confronting 401k fiduciaries? Explore Mr. Carosa’s new book 401(k) Fiduciary Solutions and discover how to solve those hidden traps that often pop up in 401k plans. The book also contains a series of chapters on this subject, including how to create an investment policy statement that defines a set of menu options consistent with the “one portfolio” concept (as well as leaving room for those few remaining do-it-yourselfers).

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Matthew Veenker
    Matthew Veenker February 11, 14:45

    Agree with all except the rule on tax-deferred vehicles. It’s a stretch to assume participants will be in a lower tax bracket in the future. Whether the IRS moves the brackets up, or the participant moves up within the brackets, it is becoming less likely that they’ll be in a lower bracket in retirement. If they are in the same or higher, a Roth option is likely the best bet.

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