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Save now, enjoy it later

By Jennie L. Phipps · Bankrate.com
Wednesday, August 28, 2013
Posted: 5 pm ET

If you are age 25 and can spare about $1 a day, you'll up your retirement income by more than $300 a month, according to calculations by Fidelity Investments. Or as Fidelity puts it, "Pack a bag lunch once a week now ... then enjoy dinner out once a week during retirement."

Here's how the retirement planning math works:

If you are age 25, earn $40,000 a year and increase your savings by 1 percent or $33 a month, investing it with an overall return of 7 percent a year on average, by the time you are 67, you'll be able to safely pay yourself an additional $330 a month from your savings, even if you live to be age 93. This assumes that your pay increases by 1.5 percent a year after inflation.

If you delay the extra 1 percent savings until you are 35, your savings don't have as much time to compound, so you'll have to up the ante. If you earn $60,000 a year, the value of your 1 percent savings would amount to $50 a month, which would increase your retirement income to an additional $270 a month. Or -- modifying Fidelity's example -- take two bag lunches a week to work and, maybe, a filet mignon and a nice bottle of wine at home every Saturday still will fit your budget.

Fidelity, which manages the 401(k)s of more than 20 million individuals and institutions, said in its quarterly report this week that the average 401(k) balance ended the second quarter at $80,600, up nearly 11 percent compared with the second quarter of 2012. Among employees who were continuously employed and participating in a 401(k) for the last 10 years, the average balance was $211,800, a 19 percent increase from a year ago.

All of these are good reasons to keep saving.

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1 Comment
Joe M
August 29, 2013 at 11:23 am

The best thing is to have as high of a deduction from your paycheck, until it hurts, in order to force yourself to save the max in your retirement account.