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In a survey of workers who participate in an employer-sponsored retirement plan, 71% said they wanted their employers to increase their contributions to retirement account automatically by 1% each year.1 

Although there’s nothing magical about a 1% annual increase, it may be a manageable way to get closer to an appropriate contribution level for your age and personal situation. So, here are a few suggestions that could help you save more without making major changes to your current lifestyle.

1. Save your raise. When you receive a raise, it’s tempting to increase your spending, but it’s also a great opportunity to increase your nest egg dollars. Even if you need some of the additional income for current expenses, divert the rest to you retirement account. When you contribute on a pre-tax basis, the difference in your take-home pay may not be as significant as you might expect.

2. Make payments to your future. If you pay off the balance on a car loan, student loan, or credit card, you could continue making the same monthly payments directly to your retirement account. Because the payment is already part of your monthly budget, this provides a way to help increase your nest egg without a major change to your cash flow.

3. Pay as you go. Paying off a credit card may allow you to save more, but it might be wiser to avoid credit-card debt in the first place. Unless you pay off your balance in full each month, credit-card interest can grow quickly and could stand in the way of building the retirement nest egg dollars you may need.

4. Limit the daily treats. You deserve an occasional treat, but spending on “little things” can add up over time. For example, if you stop for a $3.50 latte each day on your way to work and have another one in the afternoon, you would spend about $150 each month. If this amount was added to your retirement strategy, and increased with a 6% annual growth, you could accumulate more than $100,000 after 25 years.

Of course, these are hypothetical examples. But, these examples show you how you can make a big different to your retirement future by making small and manageable changes during your working years.

Regardless of whether you save by default or by choice, increasing your retirement contributions could make a big difference in the amount you accumulate during your working years (see chart).

The 1% factor : adding to your nest egg | Just Ask Freeman | VA | MD | DC

Sources: 1), January 17, 2013

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