How much a one-time 1% increase in savings will pay off in retirement

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We’re always hearing about the 1% in America. But for once, here’s a 1% that can actually work in your favor!

Read more: How to invest your first $1,000 to $5,000 wisely

Nominal increases to your savings rate can pay off big

Fidelity Investments has new research that shows how saving just one penny more out of every dollar can do wonders for your retirement over a working lifetime.

According to their numbers, a 25-year-old worker earning $40,000 who makes a one-time increase to his or her savings rate will have an extra $190 to spend each month in retirement!

Now, the math assumes several things here: You get a raise of 1.5% each year, you retire at 67 and your savings enjoys an annual return of 5.5%. Plus — and this is key — no 401(k) loans or other hardship withdrawals!

Read more: Top 5 reasons not to borrow from your 401(k)

That’s the power of raising your savings rate by just 1% — even if you only do it one time and stay at that level throughout the remainder of your working lifetime.

Clark recommends that you step up your saving rate 1% every six months, but if you can’t or won’t do that…just remember this example about how an even smaller one-time commitment to your future pays off!

It’s never too late to start saving

Years ago, Clark popped up a chart on his website that showed how a 15-year-old teenager can save just $2,000 a year for seven years. Then, never saving another penny again, the money can grow to be $1,000,000 at 65.

The point is the earlier you start, the easier it is. But it’s never hopeless at any age. If you’re getting a late start, it just means you may have to delay your retirement. One key to making the math work is to delay taking Social Security as long as you can. If possible, don’t jump at the opportunity to take it at 62 like most people do. Working until 70 and taking Social Security at that age too is a great formula for success.


Maybe you don’t care about retirement, in which case saving money never becomes something you’re about. But if the goal is financial independence, you should start young and save every day.

If you’re coming into the game kind of late, you can play catch-up. You have to be 50 or over to do this, but here’s how it works:

  • If you have a 401(k), 403(b), most 457 plans or the federal government’s Thrift Savings Plan, you can make an extra $6,000 contribution in 2016. (That’s on top of the existing $18,000 contribution limit for these plans.)
  • For those with IRAs, your can contribute an additional $1,000 in 2016, for a grand total of $6,500 in annual contributions.

Again, you must be 50 or over in both scenarios to make these extra catch-up contributions.

Read more: When’s the best time to take Social Security? Here’s how to find out…

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