Automatic, for the People

A lllooonnnggg time ago, before Earth was fully formed . . . that is to say, when I was in my early 20s, my Dear Old Dad told me that I needed to open an IRA account. You know. To save for retirement. Having no idea what an IRA account was, and then thinking not one iota about retirement, I of course said, “Uuuhhh, OK.”

Dad put me in touch with his accountant to set things up. The initial funding (which I don’t think I ever added to) amounted to maybe $1,000 or so, I think. 

IRA class

After the initial funding, I thought not at all about the account. I certainly had little idea of what the account was for beyond “something for retirement.” And while I kinda sorta knew that the money was “invested,” to be honest, I didn’t really know what that meant. I certainly had no idea in what I was “invested.”

Frankly, the only time I was reminded of the account’s existence at all was upon receiving quarterly performance reports. And while I often saw numbers going up, the base amount was so low that the needle moved precious little dollarwise. I certainly had no idea of how my investment performed relative to the total stock market. Heck, I barely know what the stock market was at all. 

One thing I did notice, however, was that I was paying account fees on the regular. High fees. I won’t mention the financial institution that held my account, nor the fund I was invested in (other than to say that it was one of the institution’s funds), but this company has notoriously high fees. Of which I was rudely reminded when The Missus joined her current employer, whose retirement plan is administered by said company. I do not like that company, Sam I am. 

And so things went for years. Those years, being ones in which the IRA was the only investment account of any kind that I held. In the early 2000s, I joined my first company (hereafter referred to as Employer A)—in which a retirement account (a 401(k)) was offered. Having no idea what a 401(k) was and thinking no more about retirement than I was at the time I’d opened the IRA, I ignored precisely all messaging about the plan. 

In time, however, something must’ve changed because I joined the plan. Employer A offered a 6% match. Having no appreciation for what that meant, and being desperately poor at the time, I invested just 3% of my salary. Paycheck contributions to the plan were automated. While I knew at the time that receiving that extra 3% in my take-home pay would’ve helped me meet my expenses or provide some financial breathing room, the “missing” income didn’t hurt enough for me to make a change. 

I later left Employer A and joined Employer B, which offered up to an 8% match on 401(k) contributions (and also contributed another 8% to a parallel retirement plan, a benefit that I knew even then was fantastic). By this point having some notion that automatic payments meant I didn’t have to do any work to contribute to the plan beyond just opting into the plan and setting the salary percentage contribution, I opted in, electing to contribute just enough to get the full match. Having received a big pay bump upon joining Employer B and made a lot of financial progress otherwise, this contribution was far easier for me to stomach than it would’ve been earlier in my career. 

Switch off

And so it went for years, until I opened my own company, initially as an LLC taxed as an LLC. By this point, I was hurtling headlong towards FIRE. But my income was far lower than it was when I was a salaried employee. 

Having also lost access not just to automatic paycheck deductions into an employer-sponsored retirement account but to such an account altogether, I faced a bundle of questions. Number one: given my position so far along the FIRE path and our much lower family income, should I open and contribute to a solo or SEP IRA for my company? And, number two, if I did open an account, should I automate contributions or just proactively make payments, either whenever I wanted to or on a regular schedule.

I ultimately chose not to open an account, but to have me and The Missus still contribute to The Missus’ employer-sponsored retirement account in an amount to get the full contribution match that the employer offered. 

Lazy boy

And you know what happened? I got lazy. We could have saved at least a little more into retirement accounts. But we didn’t. Not higher automated contributions into The Missus’ employer-sponsored retirement account, not into a solo or SEP IRA that I could open for my company, and not into my or The Missus’ traditional or Roth IRA.

Within a year of starting my business, I at last opened a SEP IRA. But I didn’t automate contributions to it. And you know what? I found myself not making contributions to it on the regular, and trying to market time when I did. 

Dumb and dumber. And so it went. 

Upon FIREing, we had far less need to contribute to retirement accounts. Except, of course, through The Missus’ employer-sponsored retirement account, for which she received a modest match that we didn’t want to pass up. For that account, we’d automated payroll deduction contributions. Ditto with contributions I make to the employer-sponsored retirement account I later opened with my employer for the part-time job I took and still have. 

But what I didn’t do is schedule and automate regular payments from our taxable brokerage account (which we’ve been using to augment our income since I FIREd). There were several reasons for this. First, it didn’t dawn on me to do so. Second, as our investments started taking a beating right after I FIREd, I didn’t want to take out any more money from the brokerage account than we absolutely needed to so long as the investments were sliding . . . which ultimately lasted about 20 months. 

This decision wasn’t wrong on its face. But it was wrong—at least for me—for several reasons. 

For one thing, it encouraged market timing. That’s never good, even if I can look back and say that my timing hasn’t been awful. 

But second, I’ve come to realize how important a regular paycheck in a healthy amount is for me (while I get a regular paycheck from my part-time job, and payments from my gig work, those sums don’t come close to bridging the gap between The Missus’ full-time job take-home pay and our expenses. 

The funny thing is that I know the importance of automating things and not trying to time the market. And yet I still made these decisions/fell prey to this unhelpful thinking. 

And in the end . . . 

In all honesty, I have no excuse. But the experience has driven home for me the wisdom and importance of automating things. . . . Now I just have to do it for regular payments from our taxable brokerage account. To make it automatic. Automatic for the people.