Sometimes small moves can yield big results. If you want to plan for a better, more secure retirement, start by increasing your 401(k) contribution by just 1%. You might be thinking that 1% can’t possibly make that much of a difference — but you’d be wrong.Here’s what Fidelity Investments found when they ran the numbers on the effect of a 1% retirement account increase for employees at different ages and salary levels.
Example #1: Suzi, age 35, earning $60,000 per year.If she put less than $12 more into her retirement account each week, Suzi could accrue over $85,000 more by retirement.*
What could that money buy her?According to cars.com the average new car payment is now $523 per month. With her additional savings, Suzi could ride in style for 162 months during retirement — that’s more than 13 years of new car smell!
Example #2: Andrew, age 45, earning $70,000 per year. By adding just under $14 more per week to his 401(k), Andrew could have almost $43,000 in additional funds in his account by the time his retirement rolls around.
What could that money buy him?According to time.com the average cost of a typical Walt Disney World vacation for a family of four is about $6360. With his additional savings, Andrew could take his wife and both grandkids on a magical vacation six years in a row with plenty left over to buy souvenirs. And the memories they’ll share? Priceless.
Example #3: Sharon, age 55, earning $80,000 per year.If Sharon started contributing less than $16 per week more to her retirement account, she could bank over $16,000 in additional savings by the time she retires.
What could that money buy her?According to care.com, the average monthly cost for biweekly housekeeping services for a medium-sized suburban house or apartment is about $150. So with her extra savings, Sharon could put her feet up and relax while someone else cleans her home for more than eight of her golden years — that’s a clean start for retirement!
Not sure how to squeeze out the extra savings? Here are three ways to contribute more to your 401(k) and feel it less:
- Increase your contribution immediately after every salary increase.
- Make sure you are maxing out any matching employer contributions (don’t leave money on the table).
- Offset 401(k) contributions by cutting expenses at the same time — save by brown bagging your lunch a couple of times a week.
If you’re not on track with your retirement goals, don’t panic. Start small — increase your 401(k) contribution by just 1% and you’ll be on the right path to making your golden years bright ones indeed.
*Fidelity estimates based on continued employment from current exact age to retirement on birthday at age 67. Assumed nominal growth rate of 5.5% and hypothetical nominal salary growth rate of 4% (2.5% inflation + 1.5% real salary growth rate), and no loans or withdrawals taken throughout. Accumulated retirement savings amounts expressed in future nominal dollars.