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Lazy man's guide to retirement
If you do nothing else, take these 5 simple steps. Don't worry. They won't interfere with your nap.
March 30, 2005: 5:16 PM EST
By Jeanne Sahadi, CNN/Money senior writer

NEW YORK (CNN/Money) Be honest: Wouldn't you rather watch paint peel than strategize a savings plan for retirement?

I often would.

Whether you work long days at the office or at home taking care of kids, the prospect of strategizing for life 10, 20, 30 or 40 years from now can leave most of us feeling exhausted, daunted or just so uninterested we can't rouse ourselves to care.

And yet we know we have to do something.

So, for what it's worth, here's a minimalist approach to retirement planning that even those in the deepest of stupors can follow.

Just taking these five relatively simple steps will put you in a sound position to build a nest egg. And even better, they won't require you to reschedule your nap, your manicure or your date with Haagen Dazs.

Step 1: Daydream a little.

Fantasize about how you want to spend your time in retirement.

Then take five minutes once a year (that's a mere 300 seconds) to figure out roughly how much you'll need to save to fund that fantasy. For help, try the American Savings Education Council's six-question Ballpark Estimate.

Mind you, this is not the most comprehensive way to plan your financial future. For that, call Jeeves. That is, consider sitting down for a couple of hours with a fee-only certified financial planner, who can tailor a planning strategy to your circumstances (which no online calculator can do).

Step 2: Give yourself a tax break.

Any contributions you make to a 401(k) will reduce your taxable income for the year and will grow tax-deferred until retirement.

The federal limit on your 401(k) contributions this year is $13,000 ($16,000 if you're 50 or older). Next year, it increases to $14,000 ($18,000 for those 50 and up).

If you can't afford to max out your contributions, at least contribute enough to get the full match from your employer. (So if the boss offers to kick in 50 cents on the dollar up to 5 percent of your pay, contribute at least 5 percent of your pay.)

Then boost your annual contributions by one to two percentage points every year. A little goes a long way. A 30-year-old making $40,000 a year who contributes 6 percent of his salary with a 3 percent match will have $770,000 by retirement. If he increases his contributions to 8 percent, he'll end up with $940,000, according to human resources firm Hewitt Associates.

Step 3: Don't lift a finger.

If you have to go out of your way to give your money away, you're less likely to do it, right? So don't put yourself in that position every month.

Just as you can with a 401(k), automate your contributions to any IRAs or other retirement savings accounts you may have.

Step 4: Don't fret about picking stocks and bonds.

Index funds can do the heavy lifting for you.

They are passively managed in that the fund managers don't decide what to buy or sell. They simply replicate the holdings of a given stock or bond index.

Index funds generally are cheaper and more tax-efficient than actively managed funds, and they give you as good a chance -- if not better -- to grow your nest egg.

In the past 15 years, U.S. equity index funds have averaged annual returns of 9.6 percent versus 9.0 percent for actively managed U.S. stock funds, according to fund tracker Morningstar.

At the very least, you'll want funds that track the major indexes of large-cap, mid-cap and small-cap U.S. stocks, non-U.S. stocks and bonds.

Or simpler yet, invest in what are called total market index funds one for U.S. stocks, one for non-U.S. stocks and one for bonds.

Just how much you should put into each one depends on your risk tolerance and time horizon. (For help figuring out the right allocation for you, try our quick four-question Asset Allocator.)

If asset allocation is too taxing to contemplate, consider investing in a target-date retirement fund, which allocates your money for you in accordance with your time horizon until retirement. (For more about these funds, click here.)

No matter which route you choose, the goal is to have a well-diversified portfolio. That can help minimize losses, since you will always have exposure to those parts of the market that are doing well. And that will reduce the negative impact of those areas that aren't doing well.

Step 5: Don't tinker.

Unlike your plants, kids or spouse, your portfolio only requires your TLC once a year. That's the time to rebalance your assets, if your allocation has gotten out of whack due to market performance.

There's a built-in advantage to doing so: Besides reducing your risk of being overexposed to any one part of the market, you force yourself to buy low and sell high. For instance, say your 60-40 portfolio looks more like 50-50 after a year. You'll want to sell off some part of the high-performing (and pricey) bond portion of your portfolio to replenish the weaker performing (and cheaper) stock portion.

Your relative inaction throughout the year also has a benefit. Studies have shown that excessive trading can reduce returns over time.

See? Laziness can be a virtue.

Jeanne Sahadi writes about personal finance for CNN/Money. She also appears regularly on CNNfn's "Your Money," which airs weeknights at 5 p.m. ET. You can e-mail her about this or any other column at  Top of page