One Change That Can Help You Save More For Retirement

save more for retirement

Everyone with a day job dreams of the day that they can hang up their work boots and retire comfortably. But what many don’t know is that there are things that you can do right now that will help you save more for retirement later on.

The sad truth is that roughly 30% of Americans have nothing saved for retirement according to information from GOBankingRates and that’s a problem. Considering that the average retirement costs somewhere in the ballpark of 3/4s of a million dollars, the time to start thinking about retirement is now.

But why do so many Americans not prepare correctly? They aren’t taking advantage of one of the most opportune assets presented to them. That asset comes in the form of a 401(k) which only a little over 2/3 of Americans are actively contributing to.

Proper Preparation Prevents Poor Performance

The most difficult part about saving is getting started. When those at work aren’t automatically enrolled into a retirement program like a 401(k) there is less likelihood that they will take advantage of it even if a company offers one. The shocking truth is that when employers automatically enroll employees into a 401(k), participation gets a boost by almost 90%. Auto-enrollees also have a tendency to save more over time. According to Fidelity, workers who had auto enrollment into a 401(k) program averaged an increase from 4% in their savings in 2008 to almost 7% in 2018.

You don’t have full control over your employer auto enrolling employees but what you can control is whether to contribute on your own and how much to contribute if you decide to do so.

Though the increase from 4% to 7% may not seem to be much, over time that is a very handsome reward especially when you start early.

401(k) Contribution Strategy

Let’s show you some real examples of how a 401(k) works for you. Let’s say you’re earning fifty thousand dollars per year and contribute four percent of your salary. That means you’re putting in about $2,000 into your 401(k) a year.

After 5 years, you increase your rate to 5% per year and at 10 years, you boost it to 6% of your salary. If you’re earning a return of 7% per year as an average, your contributions could accumulate to roughly a quarter of a million dollars compounded over 30 years. Even if you didn’t jump up your contribution percentages from 4% to 6%, after 30 years, you would still end up with a little over $200,000 in that account.

This also doesn’t take into account if your employer matches your contributions either. If, for example your employer were to match 100% of your contributions up to say, 3% of your salary, that would be roughly $1,500 in this example. Over time, using the same percentage increases and including the employer maximum 3% match that same 401(k) would be north of $400,000 by year 30 and all that was different was the employer match. Without increasing the figure (like we showed above), the “matched 401(k)” would still be about $350,000.

It’s easy to just blow off retirement especially if you’re in your early working years. Waiting until you “start earning more money” to begin contributions is the wrong way to look at the bigger picture. The longer you wait, the more time you lose and that could end up costing you tens or even hundreds of thousands of dollars down the road.

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