Making One Tiny Change Can Supercharge Your Retirement Savings

Boosting your retirement savings contribution by 1% can have a five-figure impact on your balance over the course of your career.


Welcome to Day 29 of our 30-Day Easy Money Makeover! Every day in April, we're bringing you strategies to help you improve, and feel more confident about, your money situation. Follow along and see the rest of the calendar here.

Seeing a big impact on your retirement savings can start with something small—a mere 1% increase in your savings rate.

All the tasks you’ve tackled to date in the money makeover may have helped you create space in your budget to feel more confident bumping up the contribution rate for your 401(k). (Auto insurance savings and cheaper prescriptions, we’re looking at you.)

Before you scoff, here’s the difference an extra 1% can make.

Let’s say you earn $50,000. An extra 1% contribution works out to $500 per year, or roughly $19 from each paycheck if you get paid every other week. (That money is coming out pretax, so it’s even less of a pinch. You’d only see your check drop by about $14.) Over 40 years of working, that $500 a year, dripped into an investment account with annual returns averaging 6%, could grow to nearly $83,000.

Need more incentive to bump up your contribution? Read on.

Maximize free money

About 1 in 5 workers isn’t putting enough into a 401(k) to get the full match offered by their employer. Fidelity found that 20% of those workers are just 1% shy of getting the full match. So using our example above, your $500 extra could net you up to another $500 in free money. That’s an amazing payoff for a small shift on your part.

“If you have a 401(k), you want to go for at least the company match,” says Maura Cassidy, vice president of retirement at Fidelity Investments. “If your company matches you 4%, you want to make sure you’re contributing 4%. It’s like an extra bonus that your employer is giving you.”

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Track goal progress

The earlier you start saving for retirement, the less you’ll need to put aside to end up with a comfortable retirement. If you start saving at 25, you’ll need to save at least 10% of your income, according to figures from the Center for Retirement Research at Boston College. Wait until you’re 35, and you’ll need at least 15%.

“Start out with whatever you can,” Cassidy says. “Then each year, try to add 1% more.”

Automate your rate

The mechanics of boosting your 401(k) contribution depend on your plan provider. But usually, the process is as simple as logging in to your account and adjusting your contribution percentage.

Still feeling a budget crunch? Make today’s task one more for automation: Some providers offer the option to increase your contribution automatically, a feature that’s called automatic escalation. You can time it to your next raise or another future date.

It’s an easy way to supercharge your retirement saving strategy, and put it in on autopilot as well.

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