Surprise Yourself by Increasing Your Contributions

Marshall Rathmell |


It may surprise you to see your retirement savings accumulate significantly more by simply increasing the percentage of salary that you defer each month into your retirement plan.

When working towards a more secure retirement, there are many strategies from which to choose. However, sometimes the best way to take control of your financial future may be to simply increase your retirement plan contributions. The amount of money that you contribute into your retirement plan may have a big impact on your standard of living during the retirement years. Increasing your contributions even by a small amount today could help to improve your financial future upon retirement. Regardless of your age, the longer the length of your investment, the greater the chance that your money can benefit from compounding or generating returns from previous returns.


Let’s look at a quick example of a young female making $50,000 per year and contributing 5% of her pay ($2,500 annually) to her retirement plan. After 30 years, and assuming she does not have any pay increases or bonuses, her money would accumulate to roughly $210,000 (assuming annual investment returns of 6%). However, if she increased her contribution to 7% of her salary ($3,500 annually), after the 30 year period, and assuming the same 6% return, her account could accumulate to roughly $293,000.


One of the greatest advantages of boosting your contributions is that it’s one of the few things you can control when it comes to saving for retirement. While we cannot predict the direction of the financial markets, we can decide how much money we need to be saving for an ideal future.


The contributions you make to your account on a before-tax basis reduce your current taxable income for the year, and these contributions grow tax-deferred until money is withdrawn.


If your employer offers a match on your contributions, it would be wise to contribute enough money to your retirement plan to receive the full matching contribution. This is essentially free money. Not contributing enough to get the full match on your contribution is turning your back on free money!


Remember, the amount that you contribute to your retirement plan can always be adjusted. If you anticipate a difficult few months of increased household expenses or financial stress, the contribution to your retirement account can be decreased temporarily. Once you have more financial stability, you can adjust and increase your contributions. Although you can decide the right amount to allocate to your retirement plan, it may be helpful to review your thoughts with a financial professional.


Contributing enough to your retirement today is one of the most important things you can do to help ensure that you have the financial future of your dreams.

-Justin Ladden-