‘Automatic Millionaire’ David Bach: 6 Tips To Save Retirees From Financial Disaster
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Ellie Diamond
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Cory Dudak
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Money expert David Bach, author of “The Automatic Millionaire,” has dedicated his career to helping people achieve financial freedom. His philosophy centers on making smarter money decisions that keep your assets safe.
Here are six of his top tips for protecting your retirement funds.
1. Save More as You Get Older
When CNBC asked Bach in 2018 how much money people should have in retirement savings, he pointed readers to Fidelity Investments’ age-based roadmap. This guideline suggests that a 30-year-old should have one year of their starting salary in savings, then twice their starting salary by age 35.
If you increase that goal by a factor of one every year, you’d have eight times your salary by age 60. Your final goal, Fidelity states, is to have 10 times your salary in the bank by 67.
Bach called this a general guideline, but warned that your target shouldn’t be lower.
2. It’s Never Too Late
As a money expert, Bach has spoken to people whose savings are far below goals like Fidelity’s. Whatever your circumstances, he said, “It’s never too late to start investing, and the best time to start is now.”
His first recommendation is to increase your retirement plan contribution and participate in a 401(k) match with your employer if one is available. The goal is to gradually save 10% to 15% of your income, or more if you need to and are able.
3. Spend Only on What You Value
In his book “The Latte Factor,” Bach wrote about the power of intentional spending. He teaches people that by paying attention to what they spend their money on, they can waste less and save more.
It’s not about giving up the things that bring you joy, he said. It’s about knowing where your money goes and avoiding spending on things that don’t match your values.
The next step is to take the money you haven’t spent and put it into a retirement account or other investment. That $5 you didn’t spend on a latte — or whatever you chose not to buy — can generate significant compound interest over time.
This intentional spending system can help you avoid disaster in retirement. Not only will you have more in your savings account, but you’ll have developed the habit of not overspending.
4. Ditch Budgeting for Automation
You might be surprised that David Bach doesn’t want you to budget. He’s been recommending against it for years, arguing that it’s too easy to get busy and fail.
This reality check is validating for anyone who has an unfinished budget or two on their hard drives. It’s challenging to find the time to account for every dollar to be sure you’re saving enough. That’s why Bach recommends automating your savings strategy.
Last year, he told his audiences to set aside an hour’s worth of pay every day. If you transfer those savings automatically into a 401(k) or other retirement account and avoid withdrawing it, you’ll have that money waiting for you in retirement.
5. Repay Debt While You’re Saving
People with debt can feel guilty about saving, especially since some high-profile experts like Dave Ramsey say you should ditch debt before preparing for retirement. Bach believes you can, and should, do both simultaneously.
According to his website, focusing exclusively on debt repayment can feel demotivating, especially if you dream about a comfortable retirement. Being debt free means you save on interest, but it may not be enough to grow your net worth. If you see yourself approaching retirement without a growing savings account, you risk giving up altogether.
However, if you focus exclusively on savings, you risk retiring with a pile of debt and mounting interest. Bach recommends a 50/50 approach: using half of your available funds to pay off debt, and the other half to save. This way, you can see results in both domains and be more prepared overall.
6. Manage Your Retirement Savings
According to Bach, one of the best ways to protect your retirement is to keep your savings in an account that earns compound interest, and has recommended a retirement account like a 401(k) or individual retirement account, which can pay rates of 7% to 10%, according to U.S. News and World Report. Many of these accounts feature target-date mutual funds, which transition to lower-risk options as retirement nears.
When risk management is automatic, Bach believes, your retirement is more likely to be disaster free.
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