How can online banking help me manage my retirement?

When you're young, it's hard to think about saving for retirement. But the tools you need to stash that nest egg are within your fingertips: a computer and an online bank account.
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So, you want to quit working? Retire early, get a little beach house in the Florida Keys and spend your golden years drinking out of a pineapple and watching your grandchildren run around in the sun?

It's not impossible. But the thing about retirement planning is that the earlier you begin, the better off you'll be. Ultimately, the consequences of failing to plan for retirement can be dire. As the baby boomers and Gen-Xers age, Social Security will be able to handle only so much of the financial burden for retirees. And while it's fun to imagine that you'll be able to make out like a bandit some day with that crazy, million-dollar electric pants idea you've been kicking around, the only reliable way to plan for retirement is to start saving. Right now. Get started managing your retirement when you're 25, and you could be opening up a can of beluga caviar on your 70th birthday. Get started when you're 50, and it could be a can of cat food.


Fortunately, we have at our disposal a resource that our parents and grandparents didn't: the Internet. Along with being a great way to develop support networks, do research and get financial advice, the Internet has revolutionized banking and personal finance in ways that were impossible as few as 15 years ago, making planning for retirement literally as easy as pressing a button. (OK, maybe not just one button -- you'll probably need the whole keyboard.)

In this article, we'll learn a few tips about how online banking can help manage a retirement fund, and we'll also dispel some concerns you may have about managing money in an online account. Up next, we'll discuss the many benefits of online banking and reveal one of the most difficult hurdles to planning for retirement.


Benefits of Online Banking

Online banking can help with some of the problems associated with planning for your retirement and managing those funds. You just have to know how to use the tools.

So, what can online banking actually do for you? First, it can make it easier to overcome one of the most difficult hurdles in planning for retirement -- getting started. With retirement planning, procrastination is a very real and dangerous problem. It's easy enough to put off worrying about something that's going to happen next month, but try extending that to a year -- or 30. The hardest part about saving for retirement is to get moving, and online banking can make that a much simpler process.


Convenience is online banking's strongest asset. What once involved long phone conversations, piles of paperwork and driving back and forth from the bank now can be done with only a few clicks. With fewer hoops to jump through, it's easier to get over that procrastination hump and start saving. Money can be shuffled among accounts in an instant. And when tax time rolls around, data can be downloaded directly from your bank into tax and accounting software. All your retirement information can be accessed simultaneously, making it a snap to see the big picture of your retirement plan anytime, day or night.

Another advantage of online banking is how much faster research can be done. It's absolutely vital to research thoroughly when establishing a retirement plan, but aside from the usual pages and pages of advice about which IRAs to use and which bonds to buy, good online banking options have retirement calculators to let you know just how much you'll be needing to put away every month in order to hit that goal of retiring with a million dollars. By entering a bit of information about your income, you can see exactly how much money you have and how much you need. The data is presented straightforwardly and succinctly, and you don't have to wade through dozens of confusing documents. In short, online banking alleviates a good deal of the headache that comes from planning your retirement.

Next up: You've got the money online now, so what are you going to do with it?


Managing Your Retirement Funds

OK, so you know that the tools you need are available with online banking, but just what should you do with them? How do you choose what to put your money into? Let's take a look at a few of the options:

  • 401(k)s and IRAs -- A 401(k) or an IRA is one of the easier, mostly hands-off ways to plan for retirement. Essentially, a 401(k) is a defined amount of money that's set aside from your paycheck by an employer and then invested, while an IRA is a fund you open yourself. Most 401(k) plans will allow you to choose which mutual funds and stocks the money is invested in, and online banking streamlines the process of re-evaluating those choices, which should happen about once a year.
  • Mutual funds, index funds and stocks -- Investing in mutual funds and index funds is another excellent way to manage your retirement. Unlike individual stocks, mutual funds are essentially shares in a diverse stock portfolio that a brokerage manages for you in conjunction with other investors. An index fund is a similar deal, but unlike a mutual fund, it isn't actively managed. Instead, the goal of an index fund is to match the performance of the market. This means fewer fees from brokers (as well as lower taxes because of less trading). What's more, index funds often outperform mutual funds. And while a good online banking system will allow you to link your bank account with a brokerage account to make transferring and controlling your shares that much easier, there are also plenty of online trading sites, such as E*trade, Scottrade and TD Ameritrade, from which you can manage your portfolio.
  • Checking accounts -- Budgeting with your checking account is absolutely the most important part of managing your retirement fund, as well as the part that's easiest to manage online. Besides the convenience of paying bills online, online banking allows you to track spending, making it that much easier to create a budget and stick to it, as well as be aware of just how much money you can afford to set aside every month for your retirement. If your bank doesn't offer budgeting, free resources like and Wesabe are there to help you navigate the treacherous waters of personal finance.

Now that you've got a nest egg warming nicely in cyberspace, how do you protect it? Next up, we'll take a look at a few precautions for online banking.


Online Banking Safety Concerns

If you're managing your retirement funds online, you don't have to visit a brick-and-mortar bank to make changes to your account.
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How likely is it that hackers can break into online bank accounts? The truth of the matter is that online banking is as safe as conducting transactions at a brick-and-mortar bank. The money is there, it's accessible to you, and in case anything happens, it's insured.

But moving your money around electronically may still feel strange, even a little disturbing. Hold on to that feeling. Online banking services go to extraordinary lengths to safeguard their customers' information and finances, but the weak link is the account holder. Though it's unlikely that some super-genius hacker is cracking your account password (you picked a strong one, right?), there are plenty of other ways that thieves will try to get their hands on your funds. In most cases, the best and easiest way to get into an account is through real-world information -- rifling through your garbage and happening to find a Social Security number, stealing your credit card data or even tricking you into revealing it yourself. Protecting your confidential information is your first responsibility.


Sending fake e-mails is one of the most common ways that thieves try to access your online accounts. By pretending to be your bank, thieves can coerce or trick you into giving away your personal information, usually by offering a hyperlink to a Web page where you can update or verify your information. Sometimes, these e-mails will include a seemingly innocuous attachment, which, after you open it, will allow a hacker access to your computer. It's easy enough to make an e-mail look like it's coming from your bank, even if the e-mail address looks real. Real banks never, ever ask customers to verify sensitive information by e-mail. You can protect yourself by never opening attachments in e-mails (unless you know exactly what the file is), never following unsolicited links and keeping your antivirus software updated.

This may make online banking seem dangerous, but online banking can actually make it a lot simpler to protect yourself. Having a continuous flow of information allows you and your bank to monitor your accounts. The key is to make sure that if there is a problem, you and your bank catch it quickly and rectify it. Checking for any irregularities in your statements and accounts means that you can stop identity thieves quickly, when the damage can still be reversed. Keep an eye out for any strange changes to your credit report, or any changes to your bank statements that you didn't make yourself.


Lots More Information

Related HowStuffWorks Articles

  • Bank of America. "Online Banking: What You Can Do." 2010. (Jan. 15, 2010).
  • Business Link. "Choose and run a business account: benefits of online banking." 2010. (Jan. 24, 2010).
  • CNN. "Ultimate Guide to Retirement: Where Should I Save My Retirement Money?" 2010. (Jan. 21, 2010).
  • Durkota, Michael D. and Will Dormann. "Recovering from a Trojan Horse or Virus." United States Computer Emergency Readiness Team. 2010.
  • Federal Trade Commission. "About Identity Theft." 2010. (Jan. 22, 2010).
  • Internal Revenue Service. "Topic 424 - 401(k) Plans." Dec. 18, 2009. (Jan. 21, 2010).
  • Miller, G.E. "Should I Invest in Index Funds or Managed Mutual Funds?" March 21, 2008. (Jan. 24, 2010).
  • Productivity 501. "14 Must-Have Online Banking Features." June 11, 2007. (Jan. 19, 2010)
  • UK Payments Administration. "Phishing Explained." 2010. (Jan. 21, 2010).
  • Wells Fargo. "Your Brokerage Account Online." 2010. (Jan. 23, 2010).