Retirement Savings: How Small Changes Can Make Big Differences



Many of us are fortunate to work for an employer that offers health care and retirement benefits that help us to live healthy, financially productive lives. In fact, according to the SHRM 2016 Benefits Survey, 98 percent of employers offered health care coverage and 94 percent offered some type of retirement plan.

If you have access to an employer-provided plan, what are a few easy steps you can take to increase your nest egg? As we kick off America Saves Week, a time to re-evaluate our current savings options and work to increase our personal savings, let’s look at a couple of options to maximize your money to ensure a sustainable retirement.

A 1% Increase Can Matter!

It’s called compounding interest, and it makes even small increases in contributions matter. To give you a better idea, let’s check out an example by The Motley Fool:

Say you're 30 years old, earn $60,000 a year, and currently contribute 5% of your salary—or $3,000—to a 401(k). Let's also assume that you intend to continue contributing 5% of your salary for the remainder of your career and that your salary increases 3% each year. If your 401(k) generates a 6% return (which is actually well-below the stock market's average) then you'll have about $502,000 saved up by age 65—certainly a respectable balance. But let's say you find a way to contribute 6% of your salary each year instead of just 5%. Using our same assumptions, by age 65, you'll have a balance of $602,000.

That 1 percent over time will equal an extra $100,000! And that’s with modest returns.

Start Saving Early

While the amount you save is certainly important, what can matter more is when you start saving. Take two employees who save the exact same amount, let’s say $200 a month, both yielding a 6% return, but one starts saving at age 25 and the other starts saving at age 35. By the time they retire at age 65, the person who started at 25 will have contributed $96,000, while the other will have contributed $72,000. Those contributions over time, with compounding interest, would yield $402,492 for the worker who started saving at 25, compared with the second worker who will have $203,118. That’s nearly double the return for the person who started saving earlier!

Use the Catch-Up Provision If You’re Over 50

Whether you started early or if you’re a little late to the game, it’s not too late! You can utilize a catch-up provision once you’re 50. Participants of 401(k), 403(b) and 457(b) plans are able to contribute up to an additional $6,000 per year (indexed for inflation) to their retirement accounts to help increase their retirement savings.

No matter where you fall in the retirement savings life cycle, there are steps you can take to ensure that you will have a financially secure retirement. The key is don’t delay, and save more when you can. Your future retired self will thank you!  



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