By Natalie Hayes Schmook, MBA, CFP, CVA, Hayes Wealth Advisors
Retirement savings can see very intimidating, especially for new practitioners and those who feel they are behind. The reality is that unless you start saving retirement as soon as you start working, it’s usually an adjustment to fit retirement savings into your budget.
This is where the 1% rule can be really helpful. It’s a gentle approach to learning to save for retirement. The basic gist of the 1% rule is to increase retirement savings by 1% of income each year.
A 1% increase is easiest done through a retirement plan such as a Simple IRA or 401k; you just need to advise your administrator you’d like to increase your contribution by 1%. 1% on a year over year basis isn’t much—on $50,000, that’s $500 per year, or $42 per month. If you don’t have access to a work retirement plan, almost all payroll providers would allow you to direct deposit your savings into a traditional IRA or Roth IRA at a firm like Fidelity or Vanguard.
If you want to push this concept further, annually increase retirement savings by any cost of living adjustments you get. Not all practices increase income annually, but if you work for once that does, this is a great way to take money off the table without missing it.
Using $50,000 as an example, if you got a 3% increase in wages, you’re now making $51,500. If you increase your retirement contributions by that 3%, you’re saving an extra $1,545 per year, sneaking in an extra $45 (a number not likely to be missed) per year by using the increase in wages.
Saving for retirement can be hard, but having a set strategy in place can make it easier to meet your long term goals. And the earlier you start, the better, even if it’s just 1% of income.
Related: Read about rolling kids’ 529 plans into Roth IRAs here.
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Featured photo credit: Jason Marz, Getty Images