The New Year is right around the corner but I bet many of you haven’t implemented this simple step to set yourself up for a more likely financially successful retirement.
It involves your retirement contribution rate and the average retirement contribution rate for US employees is so scary I didn’t even bother looking it up.
If you want to have a financially successful retirement you must want to (and actually) be above average. It isn’t too hard and I’m certain you can do it. So what is this simple tip?
Increase Your Retirement Contributions
Increasing your retirement contributions is quite easy in most cases. The first thing you need to do is know how much you are currently contributing to your retirement account. Look at your brokerage statements or paychecks depending on how you contribute. If you need help figuring this out contact me and I’ll do my best to assist you.
The next step is quite easy now that you know how much you currently contribute. Contribute more money! If you contribute through paycheck deductions go to your HR department (or log in to your account online) and ask to increase the amount or percentage beginning in January.
Even a small additional amount as low as 1% a year or $10 a paycheck can make a big difference in your retirement.
If you execute transactions through your brokerage firm, simply increase the amount of each transaction you execute by your additional contribution. If you have an automatic investment plan set up with your brokerage firm, increase the amount of the automatic contributions.
You should only have to increase this once per year and then you can forget about it until next year when it is time to increase your contributions again!
Can Raising Your Retirement Contribution Amount Make a Difference?
Think about this. If you get paid bi-weekly (26 times a year) and increase your retirement contributions by just $10 a paycheck once and maintain that contribution level you’ll be contributing an extra $260 per year. If you have 40 years until retirement that is an extra $10,400 even without calculating any type of investment returns!
Another fun example is if you increase you retirement contributions by $10 additional dollars each year. That would be $10 per paycheck over the base year in year one, $20 per paycheck over the base year in year 2 etc… By the end of year 40 you will have contributed an additional $213,200 just in base contributions. That doesn’t even factor in investment returns!
You have a few options of which retirement savings to increase depending on your personal situation. Americans could increase the amount you contribute to your Roth IRA, regular IRA, 401(k), 403(b) or other tax advantaged retirement savings vehicle (as long as you don’t exceed the stated 2013 maximum contribution limit next year). Here is a great resource if you don’t understand an IRA vs 401(k).
If you’ve taken advantage of all of the tax advantaged accounts that you can, or you want to retire early and needs some non-retirement savings, you can contribute more to a taxable brokerage account.
This simple strategy is so easy. It only requires you to increase your contributions. We aren’t talking about huge difference. Just increase your contributions. You’ll thank me when you retire and have more money to live your life.
Do you increase your retirement contributions every year? Will you be doing so for 2013?