Small Steps Can Make A Big Difference

Everyone dreams of a secure retirement. Yet, nearly half of American families have no retirement savings at all. Of those who do have retirement savings, most are not saving enough. The key is to start where you can and continually increase your contributions over time until you achieve your goal. Retirement planning is one of the most important financial goals you can undertake, and it doesn’t have to be difficult. Just remember two important parts: 1) having a retirement plan and 2) making sure you are saving enough.

Start Saving for Retirement Early

If you have not started saving for retirement, start now! If you do nothing now, you will have nothing then. Most people put off saving for retirement because they mistakenly believe they have plenty of time down the road once they make more money, put the kids through college, pay off the house note, and so on. Yet, the longer you wait, the harder it will be to build the nest egg for the retirement you dream of. The earlier you start, the easier it will be, and it will never be easier than today.

For example, if you start at age 20 and contribute $100 each month consistently for 46 years, by the time you retire at 65 you will have accumulated over $540,000 (assuming an 8% average return). If you wait until you are 40, you would have to contribute $500/month for 26 years to reach $518,000. The lesson is simple…time and compounding interest are your friends. Don’t let anything stand in your way. You may have to start saving small amounts at first and work your way up.  Small steps can make a big difference.  The key is to start now!

Be Sure You Are Saving Enough

If you are saving for retirement, then the question becomes “Are you saving enough?” Most experts suggest saving 15% of your salary for retirement and have six to ten times your annual salary saved for retirement. No one wants to be told to save more, but the reality is you are either saving for retirement today or you are consuming your retirement today. If you know you are not saving enough for retirement, why not start increasing the size of your nest egg today?

The good news is, it’s not complicated. It can be as simple as increasing the percentage you put toward retirement every month. If you are contributing 3% of your income to retirement, bump it to 5%. If you are contributing 7%, increase it to 9%. Some people may think they can’t afford to increase their retirement contributions, but most can. You may be surprised at how little of an impact retirement contributions have on your paycheck.

Take this scenario for example. Fred is 30 years old and earns $3,000 a month ($36,000 a year). He contributes 2% of his salary to his retirement account. He is on track to have $145,000 by age 65 when he plans to retire (assuming an 8% average return). After looking over his current financial savings, he realizes he is not saving enough and decides to increase his contribution by 3%. Due to tax savings, Fred’s contribution increase of 3% ($45 per paycheck, twice a month) will reduce his paycheck by only $41 and potentially improves his savings balance at retirement to $363,000. That is an increase of over $200,000!

Just think, by bringing your lunch to work every day rather than eating out, you can increase your retirement nest egg by an estimated $200,000. A little can go a long way. Your retirement dreams can become a reality.

Save as much as you can–your future self will thank you!