Investing

Making one small change can supercharge your retirement savings

Sam Becker@smbecker
Twenty/20

New data from Fidelity shows that employees are contributing more to their retirement accounts than ever, and one-third of workers have increased their savings rate in recent months.

The average employee now contributes 8.8% of their salary, with employers kicking in another 4.7%, for a total of 13.5%. "That's really close to the 15% we believe people should be saving," Katie Taylor, a vice president at Fidelity, told CNBC.

The strong economy has likely played a role in helping people save more, says Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth in New York City. "The markets are rising, and it creates a positive effect," he says. "People have had the opportunity to increase their savings rate."

Indeed, experts agree that you can see the biggest impact from making one small, important change: Get in the habit of not just making but upping your retirement contributions.

"Increasing your contribution rate, even by 1%, can make a big difference in your long-term retirement savings," says Kevin Barry, president of workplace investing at Fidelity Investments. "What may seem like a small amount today can have a significant impact on your account balance in 10 or 20 years."

Graphic preview
The difference annual increases can make
Automatically adding 1% to your 401(k) contribution each year can make a big difference by the time you retire.
Social chart title
Note: Assumes a $50,000 salary, an initial 3% payroll deduction, a 1 percentage-point annual increase (up to 15% cap), and a 6% average annual rate of return.
kiersten schmidt/grow Vanguard

Money invested now has the best chance to increase with time. That's why it's also important to start saving as soon as possible. "Millionaires are made in their 20s and 30s, not their 50s and 60s. The reason being, they have decades of compounding growth," Fred Creutzer, president of Creutzer Financial Services in Maryland, recently told Grow.

Other numbers in the Fidelity report point to the potential rewards of consistent saving: The tally of "401(k) millionaires," or workers with a balance of at least $1 million, hit a record high. Roughly 196,000 people have achieved that goal, an increase of 17% from last year.

How to set yourself up for a comfortable retirement

Fidelity recommends that you save about 15% of your income for retirement, between your contributions and what, if anything, your employer adds. Here are three things you can do:

  1. Save enough to get the full employer match in your 401(k). If your employer offers a 401(k), make sure you're contributing at least up to the employer match — which is basically free money. The average employer match is 3%, according to Vanguard's How America Saves 2019 report, and nearly half of employers will match your contribution every pay period.
  2. Consider opening an IRA. Setting up an individual retirement account is an especially smart move if your employer doesn't offer a workplace plan. These accounts have tax advantages and take just minutes to open.
  3. Set up automatic contribution increases. As discussed above, you can benefit greatly from increasing the amount your contributing to your retirement accounts every year. An easy way to do that is to utilize automatic escalation features that are offered by some retirement plan providers. These features will boost your contribution rate every year, typically by 1%, until you're where you need to be.

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