Can Saving 2% More Make A Difference?

I DO A LOT OF RETIREMENT PLANS AND PROJECTIONS.  I do them for couples, singles, people close to retirement, others in retirement, and for many who are several decades away.

SOME PEOPLE ARE IN GREAT SHAPE – OTHERS NOT SO GREAT. One of the benefits of the projection is you get a sense of where you stand for the future.  Another important benefit is you can learn what you can do today to improve your prospects.

SOMETIMES EVEN I FORGET JUST HOW IMPORTANT SAVINGS IS IN HELPING PEOPLE REACH THEIR GOALS.  I was just reminded of this, though, as I was doing a plan with one of my clients.  

HE IS SINGLE AND IN HIS MID FORTIES.  He was concerned about his retirement.  He didn’t think he had much chance at all of ever retiring. 

SO WE RAN THE NUMBERS!  I put in what he had saved so far, what he was saving, used a modest interest rate of 5% and reduced that to 3% in retirement, his projected Social Security, some minimal income from work in retirement – he was fine with that – and his expenses.  In his case, he has virtually no debt and will pay off his home soon.

HE WAS SHORT OF WHAT HE WOULD NEED.  But hey, it wasn’t by all that much! He benefits from his modest lifestyle.  He does fine on a limited budget.  And, bonus, his home was going to paid off relatively soon.

THEN HE ASKED WHAT WOULD HAPPEN IF HE PUT IN 2% MORE PER PAYCHECK.  Play the triumphant music!!  Ka-ching.  It was amazing, but just by increasing his contribution 2% per paycheck, from 5% to 7%, his accumulated savings in retirement went up significantly.  

IN FACT, HE WENT FROM HAVING A PROJECTED SHORTFALL TO A PROJECTED SURPLUS.  Just by contributing 2% more.  But in his case this is 2% more for over 20 years – with interest.  It made a big difference.

WHILE NOTHING IS EVER GUARANTEED, SAVING JUST A LITTLE MORE MONEY NOW CAN MAKE A BIG DIFFERENCE LATER.  Don’t overlook how a minor change like this can enhance your future.