I regularly share my thoughts on automated investing and putting money away for retirement. In some posts, I’ve discussed how much to save each pay period. 10%, 15%? More less? I always say to just start with something and save as much as possible for your situation. Today, I want to talk about increasing that amount.
What I Save
Each paycheck, I have several automatic investments sending funds to my retirement accounts. I put 8% of my salary into my 401(k), of which 4% of my salary is matched by my employer. That equals 12% of my total salary.
I also contribute $211 each paycheck to my Roth IRA, which over a year is just a few dollars short of $5,500, the maximum allowed contribution to this type of account.
I won’t share exact dollars, but as you can see, I put quite a high percent of my paycheck into my retirement accounts each month.
Where to Start
If you are not saving for retirement yet, it all starts with the first dollar.
If your employer offers a 401(k) match and you are not taking advantage, fix that today. By ignoring your company match, you are leaving free money on the table. Take the money!
Just start with the basic thing. Find a mutual fund designed for people your age (called target date funds). My favorite option is Vanguard due to the low fees, but there are lots of options to choose from. Just choose something and get started.
What Happens When You Increase Savings by 1%
Let’s say you have a typical finance/accounting/engineering/office job and make about $55,000 per year. What happens if you decide to increase your savings by 1%? That 1% is equal to about $4.90 per week. Not the kind of money that you will miss.
What is that $4.90, less than $10 per paycheck, going to do for you? Over a year, it is going to be worth about $250. Over a decade, you stashed away $2,500. But that is worth a lot more than what you put away, you get compound interest!
If you are about my age, 28 years old, over the course of your career that $1%, that small $4.90 per week, will be worth $55,000 in retirement.
Let me repeat that. Increasing your retirement savings by $4.90 per week could give you $55,000 extra dollars in your retirement account.
1% will not change your lifestyle today, but it can mean a world of difference in retirement.
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Image by MoneyBlogNewz / flickr, edited by Eric
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I increase my retirement contributions by a part of my raise every year, even though I already contribute a lot. Once I find out, if I find out, that I’m ahead of the game I can scale back later.
Because my contributions are a percentage, whenever I get a raise, my contribution increases. I usually increase my contribution by 1%-2% per year, so a good chunk of any raise I get ends up going to the 401(k).
Every percentage point counts big time, and can really add up over time. Save early in life and save as much as possible. Net worth could really grow to surprisingly high levels later, and we’ll be thankful we saved and invested when we look back later in life. Giving a pat on the back to the younger version of ourselves 🙂
I totally agree. I just did a post on what saving 1% more in your 401(k) can mean for you in 30 years. For many of us, it can mean $55,000!