Start Small, Finish Big
National Save for Retirement Week: October 20-26, 2013
Saving extra money for retirement is a big deal. In addition to a pension and social security, supplemental savings from the deferred compensation plan can help you reach your financial goals and live more comfortably in retirement.
National Save for Retirement Week is a great time to review your retirement savings situation. If you’re not currently participating in the deferred compensation plan, we encourage you to enroll today. Enrollment takes minutes to complete and contributions to your account will be automatically deducted from your paycheck the month following your enrollment (for example, if you enroll in October, deductions will begin in November). If you are participating in the Plan, it’s a great time to consider changes that could improve your savings progress. While it’s natural to think about large-scale changes to improve your outlook, this fall we encourage you to think small – acorn small.
Acorns are the tiny nuts that fall from oak trees in the fall. While you may associate them with squirrels preparing for winter, acorn shells hold the seeds to future oak trees. Only under the right circumstances, with the right amount of time and nourishment, will acorns sprout and grow into large trees. Like the acorn, your retirement savings start out small and require plenty of time and attention to grow large over time. Luckily, there are a number of small, budget-friendly changes you could make today that will prepare your savings for that long-term growth.
Increase your contribution by $15
Increasing your semimonthly contribution by only $15 could add over $24,000 to your savings over 25 years*. Don't think a tiny change can't make a huge impact.
Switch to percentage-based contributions
Let’s assume you earn $1,500 each semimonthly paycheck (that’s $36,000 annually) and contribute a flat-dollar amount of $75 to the deferred compensation plan each pay period. If you simply changed your contribution to 5% of pay, you would still be contributing $75 each paycheck; the difference is that when your salary increases, so too will your contributions to the savings plan. Just by making a simple adjustment in the way your money is contributed, you can make a lasting impression on your account balance.
Utilize auto-increase
Auto increase is a simple tool that allows you to increase your contribution percentage in one-tenth of one percent increments on an anniversary date each year. It’s yet another gradual way to increase the amount you contribute to the plan as your career evolves. Better yet, you can set your auto increase schedule once and let the system do the rest of the work for you.
For instance, if you made $36,000 annually and increased a starting 5% contribution by 0.2% (two-tenths of one percent) each year, you would have over $200,000 after 25 years**. Compare that to the $145,213 you could have if you kept your contribution at 5% for your entire career**. In this situation, a two-tenths of one percent contribution increase would only add about $18 to your monthly deferral between year one and two, but it’s yet another small change that could mean big savings down the road.
Next steps
To adjust your contributions, log on to Account Access and navigate to the Contributions page under the Manage My Account tab. You can also call 800-392-0925 to discuss your contribution options with a participant service representative.
* Assumes a starting account balance of $5,000 and a semimonthly contribution of $25, plus a 7% annual rate of return on your contributions.
** Both examples assume a starting annual salary of $36,000, a 2% annual salary increase and an annual rate of return of 7%.