How annual contribution increases affect retirement savings
Michael enrolls in his retirement plan at age 25 and decides to contribute 5% of his $50,000 salary every year. By the time he’s 45, assuming his salary remains unchanged, his account balance will be $106,333.
Angie also earns $50,000 a year and enrolls in her retirement plan at age 25. She decides to contribute 5% with a 1% increase every year for 20 years. Angie’s account balance at age 45 is $261,925, assuming her salary remains unchanged!
Increasing your contributions by just a small amount can have huge effects on the amount you save over the course of your lifetime.
Assumptions: Assumed growth rate is 7% annually. Please keep in mind that rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk. This example does not take into account the effect of investment management fees, product-related fees, or taxes.
