“Small changes add up to big things.” In everyday life, this bit of wisdom might mean making nutritional tweaks to lose weight or tackling minor home improvement projects to increase the value of your home. When it comes to saving for retirement, committing to steady, incremental changes in your 401(k), 403(b), or other workplace retirement plan can have a big impact on your retirement nest egg. Here’s an example that demonstrates how depositing just 1 percent more of your annual salary into your retirement account can make a significant difference in your savings.
The Power of 1%
James, age 40, earns $50,000 per year. He has been depositing 2 percent of his annual salary into his 401(k) plan for the past 12 months. If James continues to do this for the next 25 years, his account will have a balance of $55,975 when he retires at age 65. That’s pretty good.
But what if you contrast James’ saving efforts with Jennifer, who also is 40, earns $50,000 per year, and deposits 2 percent of her salary into her 401(k) plan? Unlike James, Jennifer increases her 401(k) contribution by 1 percent each year until she reaches an annual 10 percent contribution. When Jennifer retires at 65, her account balance will be $223,330. By making small, steady changes, Jennifer will earn $167,355 more than James.
Can you increase your contribution to your 401(k) or 403(b) account each year until you reach at least 10 percent? Many companies make it convenient for you by automatically increasing your contribution (usually in 1 percent increments) each year.
By making small changes over time, you’ll barely notice the change in your paycheck, but you’ll be taking a giant leap toward a more prosperous financial future. If you need help determining how you can better save for your retirement future, please reach out to me. I would love to help develop a plan for you that will put you on the path to reaching your retirement goals!
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Commonwealth Financial Network® does not provide legal or tax advice. Please contact your legal or tax advisor for advice on your specific situation. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Authored by the Retirement Consulting Services team at Commonwealth Financial Network. © 2020 Commonwealth Financial Network®