"Give it one-hundred percent." Those words of encouragement make sense when you're, say, training for a marathon or interviewing for a big job. But when it comes to saving for retirement, let's be honest: giving it 100% just isn't realistic. When you have bills to pay, student loans to worry about, and you're trying to find a way to squeeze in a little fun, saving for retirement doesn't always make it to the top of your priority list. But what if you started with contributing 1% more of your salary into a retirement savings plan each month? As the Fidelity Viewpoints®article, "Just 1% more can make a big difference" explains, that could be as simple as packing your lunch—and that extra 1% could add up to thousands of dollars by the time you reach retirement.
There's this thing called compounding, and here's why it's great. Even if you can only afford to save a small amount each month, the interest your money may earn over time could do wonders for your cash flow in retirement. To see what I mean, let's take a look at a hypothetical example, where three savers, Bob, Suzie, and Andrew, challenge themselves to contribute just 1% more to their retirement account each month until age 67.1
First, a few assumptions:
- For simplicity, we have our savers contributing to a 401(k), but this example could also apply to 403(b) and 457 accounts.
- We assume our savers' salaries grow 1.5% a year—adjusted for inflation—which will boost their contribution amounts along the way.
- Finally, we assume a 7% long-term compounded annual hypothetical rate of return, which aligns with an average long-term return for a growth-focused account.
As you can see, contributing just 1% more—no matter how old you are—can really add up by the time you reach retirement age. But things get really interesting when we take a look at what Bob was able to save, in our example. Even though he was saving less per month than Suzie and Andrew, he was still able to outsave both of them—and not just by a little. Because Bob started saving at a younger age, his savings had more time to grow—and it's all thanks to the power of compounding.2
That's great for Bob, but what about you?
To find out if you're on track, consider visiting Fidelity's Planning & Guidance Center where you can also estimate how saving more can help improve your income in retirement. If you’re ahead of the game, good for you. Behind? Don’t sweat it. Just remember that Fidelity recommends you save a total of at least 10% –15% of your income toward retirement (and that includes any matching contributions you may get from your employer). A good place to start could be taking Bob, Suzie, and Andrew’s lead, and challenging yourself to save just 1% more.
THE BOTTOM LINE:
You can totally do this.
Take the next step
Use Cinch to see where you can cut back on expenses—then see if you can save just 1% more.