How to Simplify Your Financial Life

Did you make a New Year's resolution to simplify your life? Simplifying your finances—focusing here specifically on your retirement savings—can be a big step in the right direction.

Save at work. Contributions to a 457 or 401(a) plan are automatically deducted from your paycheck before you have a chance to spend the money. If you make pre-tax contributions to a 457, investing the maximum $15,500 in 2008 will lower your take-home pay by only $11,625, if you're in the 25 percent tax bracket. Start investing that much when you're 45, and you could end up with more than $675,000 by the time you're 65, if your investments earn 7 percent a year.

Pick pre-diversified funds. If you don't want to worry about choosing the right funds and maintaining your own portfolio over time, consider lifecycle funds. Pick a fund that matches the date you plan to start withdrawing the money in retirement, and investment professionals automatically shift the portfolio from aggressive to more conservative as your target withdrawal date gets closer. For details, see the "Our Funds" section.

Automate your IRA contributions. You can have your IRA contributions automatically deducted from your bank account. Contributing $416 per month will get you the maximum $5,000 contribution by the end of the year (you can contribute $6,000 in 2008 if you’re 50 or older). For help figuring out whether a traditional or Roth IRA is best for you, use the IRA Wizard.

Contributions to a 457 or 401(a) are automatically deducted from your paycheck before you have a chance to spend the money.