Not Investing Yet? Could Just $21/week mean $275k more for you in retirement?

YOLO – You Only Live Once. True but unless your birth certificate is unlike mine and actually has an expiration date, you have no idea how long that life will be unfortunately. 

Unless eating cat food in retirement sounds like good time (I won’t hold my breath for that Instagram photo) take control today. 

The hardest part is taking that 1st step. But taking a few minutes today can have a big impact over time. Stay tuned and we’ll get to that $275k number.

If you work for a company with a retirement plan match, start with the match. Well, that’s not really what I would recommend but I’ll get back to that in a few minutes.

Let’s say you have 401k or other retirement plan that offers a dollar for dollar match up to 3%. You defer 2% of your pay and that gets invested in your 401k plan, and they will match dollar for dollar or 2% of the employer’s money. If you put in 3% they put in 3%. If you put in 5%, they put in 3%. 3% is their max in this example. Do keep in mind that 401ks and matches have many variations.

By the way, the maximum that you can defer into a 401k in 2019 for those under 50 years old in $19,000. If you are 50 or older you can defer up to $25,000. But what can you comfortably defer from your pay today for retirement down the road? 

Let’s walk through an example.

With a $45k salary, 3% is $1350 per year or $112.50/mo, BUT, because you are investing pre-tax dollars, it won’t feel like $112.50 less in your pocket each month. If between federal and state taxes, you pay 20% in income tax. Taking that money as income would have only netted you $90 after those taxes. So, can you live on $90 less per month or about $21 less per week? That doesn’t sound so hard does it?

If you think that sounds easy, do this. Take the percentage you think you could defer and add 1%-2% more to get a jumpstart on paying your future self today. After you set that up with your 401k provider either on-line or over the phone, see how it feels after 3-4 months. Most people I work with just make adjustments and it starts to work but IF after 3-4 months, you really can’t get by and pay your monthly expenses, take steps to dial it back down by a percent or 2 if that’s what works at this point. I bet it you can make it work though.

So what can doing without just $21/week do for you over time?

A 3% salary deferral plus the 3% match will be $2700/year invested. If that can grow at an average rate of return of 7% for 30 years that will equal around $275k. IF you think you can defer 5% from your pay and still get the 3% match from the company that would equal $3600/year. At the same 7% growth rate over 30 years, you would have around $367k. Not bad at all right?

One more thing to improve upon this process. Many 401ks will allow you to make a selection today that will increase how much you put away every new calendar year.  Maybe start at 1% each year. If you regularly get some sort of cost of living increase each year, this will make sure some of that is being swept into your retirement savings automatically. If your plan does not have such a feature, set your self a reminder on your smart phone for early January to make sure you connect with you 401k provider to manually make that change each year.

There can be many questions when getting started. Reach out or comment on how I can be of service. Let me know if you have suggestions for future topics. Always here to help.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. The example presented is hypothetical in nature and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.