This week increase your retirement contribution by 1%. It may not seem like much but this small action is the difference of thousands of dollars in 10, 20, or even 30 years.
One of the things my clients worry about the most is whether they’ll have enough for retirement. It is something I’ve worried about too. I have eased my own overwhelm by increasing my retirement contributions and talking with my financial advisor who helps me think through the big picture.
You may not have all the pieces together but can take action with this simple step and leave worry behind as you prepare for the freedom and flexibility you desire when you’re 60, 70, and 80 years old.
I realize I’m asking you to increase your retirement contribution by 1% but I also need to ask you this important question.
Are you contributing to your retirement?
You might be surprised to know that only one-third of people participate in a 401k. Before you can take any action make sure you’ve taken the appropriate steps with your HR department to set up your retirement accounts.
Now, let’s get back to taking care of your future self. Your goal in increasing your contributions by 1%is to get closer to the maximum amount you can contribute each year. This year the maximum is $19,500.
Here are three tips to help you reach this goal.
1. Determine how much you are contributing to your retirement.
This is as simple as calling your HR department or logging into your HR portal and asking them how much you contribute to your retirement account each paycheck. Most people contribute a certain percentage of their paycheck so ask them what percent you’re contributing.
2. Determine what percentage you need to contribute per year to max out your account.
So, let’s say you make $100,000 a year before taxes. You know that you are currently contributing 4% to retirement. Well, to get to the maximum contribution of $19,500 you need to contribute 19.5% of your salary. Since you’re already contributing 4% you need to increase your overall contribution by 15.5%.
You can determine your own percentage by using this simple calculation. Take the maximum contribution divide it by your annual salary before taxes and multiply that amount by 100.
Here is a table with a few calculations already completed for you.
Annual Salary Percent Needed for Maximum Contribution
$60,000 (19500/60000) x 100 32.5%
$80,000 (19500/80000) x 100 24.4%
$100,000 (19500/60000) x 100 19.5%
$120,000 (19500/60000) x 100 16.25%
3. Create a plan to reach the maximum contribution 1% at a time.
It can be daunting to think you need to increase your contributions by 5, 10, or even 15 percent. So, that’s why it’s important to create a plan. Maybe you can’t increase your contributions by 5 or even 10% but you can get closer to your goal 1% at a time. You might decide to increase your contributions by at least 1% every quarter this year or increase your contributions by 5% each year when you get a raise.
Contributing a little bit more to our retirement account is the easiest way to take care of our future self and take advantage of the benefit of compound interest. The actions you take today will ensure that you are taken care of later.
All the best,
Keina
