By Natalie Hayes Schmook, MBA, CFP, CVA
January means a new year, and I want to share with you the easiest New Year’s resolution that you will absolutely keep if you do it correctly. It’s such a small thing, but done annually, it can make a huge difference the size of your investment portfolio when you decide to retire.
It’s this simple: in January, increase your retirement contributions by 1%. Just 1%, that’s all. Think you can’t afford it? Consider this:
For a part-time OD making $50,000 per year, 1% is $500. That’s $9.62 per week, which is less than two drinks at Starbucks or one movie ticket.
For a full-time OD making $120,00 per year, that’s $1,200 per year, or $23 per week. TWENTY THREE DOLLARS per week, or one less Amazon impulse buy.
Put that way, it may not even seem like enough to bother investing, but let’s look at this over time.
Just $500 per year growing at 8% per year over 10 years turns into $7,243. If a person at this same salary contributed an extra 1% per year each year for 10 years, that would grow to $30,284 at 8% with only $22,500 of contributions.
$1,200 per year growing at 8% per year over 10 years turns into $17,283. If this same salary-earner upped their contributions by 1% per year for 10 years, those contributions would grow to $76,682 with an 8% return, with only $54,000 of contributions.
I also suggest auto-debiting this from your paycheck so you don’t miss it. For ODs who have an employer-sponsored plan, this is an easy place to contribute your additional 1% and possibly with the added bonus of a match. Q
Do you qualify for a Roth IRA? Contribute there within the $6,000 annual contribution limit. If you’re maxing out your retirement plans, open an individual investment account.
No excuses! Make the 1% challenge part of your New Year Resolution!
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