Saving Early and Increasing Contributions: Small Steps Make a Big Difference


Experienced professionals recommend setting aside 15% of your income into your retirement account. However, many workers may find it difficult to make that commitment all at once — so they work up to it!

The best place to start is by saving at a rate high enough to at least obtain your organization's matching contributions. Then commit to raising your contribution rate at least 1% or 2% every year until you have reached your contribution goal.

Annual Increases Can Make a Big Impact since you are not only saving but also investing!

Just ask Flat-Dollar Fred, Percentage Patty, Increasing Irene and Saver Steve — four employees who started saving at the same time but had contrasting results due to different saving habits.

Flat-Dollar Fred simply saved the same, flat dollar amount — with no increases over time and no regard for inflation or salary increases.

Percentage Patty set a fixed percentage of a 5% savings rate but never considered increasing her percentage year-over-year.

Increasing Irene set an initial 5% savings rate but then made sure to increase her savings by 1% each year until she eventually reached 15%.

Did you notice the large margin between Patty's and Irene's account balances at retirement in the graph below? Percentage increases make a difference!

Saver Steve started strong with an outstanding 15% savings rate — a goal financial advisors recommend working toward — and then he stayed there for the long haul.

Make it a goal to increase your contribution rate to reach 15% of your salary as early in your career as possible.

Benefits of Regular Increases vs Static Contributions

To keep yourself on pace like Increasing Irene and Saver Steve, use milestone events like these as reminders to increase your retirement contribution percentage:

  1. Increase your contributions each time you receive a pay raise, bonus or promotion.
  2. Increase your contributions as you pay off a debt, such as a credit card or automobile loan.
  3. Create an annual reminder on your calendar, computer or phone to prompt you to review your balance and increase contributions each year.

Since your savings are not just going into a savings account but a retirement investment account, they may enjoy the potential of compound growth. Compound growth is the earnings on both your original investment and any interest and dividends your investment earns. That means that you can earn interest on interest you have already earned, multiplying it exponentially.

The earlier in your career you start saving for retirement, the more compounding can benefit you. In the above example, it's important to note that each character started saving something as soon as he or she could — although we should all work toward the saving habits of Saver Steve.

If you wait 10 years down the road at 35 to begin saving, it brings a higher cost of waiting. But don't despair if you're near retirement — starting late is better than not saving at all.

Saving early provides more than a moment of satisfaction; it can provide essential day-to-day income for the 20 or more years most of us will live after our days of paid service end.

Ready to get started?

Click here to log into MyGuideStone to review and update your contributions.