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Like last year, I’m participating again in the 1% more blogging project. Bloggers from around the country are writing articles promoting you to consider increasing your retirement savings just 1% in 2014. Last year I wrote about ways to free up money in your budget to increase your contributions. Today I’m going to share what increasing your retirement contributions by 1% can do for your retirement portfolio.
If you make the median US household income of $50,000, a 1% increase in retirement contributions will mean you are putting about an extra $42 a month into retirement. Compounded at an 8% annual rate of return your 1% increase would be worth the following:
10 Years $7,685
20 years $25,000
30 years $62,000
40 years $146,000
After 10 years, it doesn’t seem like much, but over time it starts to grow a lot more. You might not have 40 years until retirement but just increasing your contributions 1% for 20 years will net you an extra $25,000 in retirement.
With that being said, look at our example numbers again and consider:
Company Match-This amount doesn’t even include any potential matches from your employer. If your 1% increase would be matched by your employer as well, those numbers above would double!
Your 1% increase amount-We used $50,000 in our example. But if you make more than $50,000 a year your 1% increase will be more than the $42 a month in our example which in turn will make your savings even bigger.
Your rate of return-I picked 8% as a nice conservative number but what if you got a higher rate or return, say 9 or even 10%. Remember, when you have time to save, the power of compound interest is on your side.
One time-This 1% increase example was just based on one year. What if you increased your retirement savings 1% every year you got a raise?
1% might not seem like much in the beginning, because it isn’t. But when it comes to retirement planning we aren’t really concerned with what your portfolio will look next month or next year. We are concerned with how it will look in 10 to 15 years or greater. So consider making room in your budget to increase your retirement savings 1% this next year and begin building a safety net for you and your family.