Save and Invest

Increasing your 401(k) or IRA contributions by just 1% can make a big difference — here's how much


The 401(k) contribution limit increased by $500 this year, from $19,000 to $19,500 for employees under 50. But even if you aren't in the financial position to max out your account, experts say increasing contributions by as little as 1% can still make a big difference in building wealth.

A 1% increase may not seem like much, and that's precisely the point. While you won't feel a major sting when you get your next paycheck, your investments will benefit over the long run.

"Those small jumps by just 1% or 2% over a 20-year or 30-year career can really make a big difference in the end," Meghan Murphy, vice president at Fidelity Investments, told CNBC. "The longer that money is in the plan and has time to grow, the better off you are."

The definitive guide to retirement savings plans
The definitive guide to retirement savings plans

Here's how that works: A 35-year-old earning $60,000 per year could have an additional $85,500 in her retirement fund at 67 if she increased her contributions by 1%, according to calculations from Fidelity Investments. That's the equivalent of saving $12 more per week, assuming a 5.5% return on investments and consistent salary growth.

Fidelity suggests signing up for automatic contribution increases each year if your plan allows it, or increasing your contributions as soon as you get a raise, so you won't feel the difference.

The same advice applies for those without access to a 401(k). The IRA and Roth IRA contribution limit stands at $6,000 this year for those under 50 and $7,000 for those 50 and older. Saving $500 per month may not be feasible, but $50 or $100 is an easier lift, and can still compound over time.

Making small sacrifices, or saving your raise or tax refund as Fidelity suggests, can help you get there.

Aim to save 15%

Once you get a handle on the small increases, Fidelity recommends aiming to put away 15% of your income toward retirement each year, including any matching contributions from your employer.

Even if saving 15% of your income seems like a pipe dream, the most important step to take is to save something. When you are able, you can gradually increase your savings rate to where you want it to be.

"Few people get there overnight," writes Fidelity. "Think of planning for retirement as a journey. The key is to save as much as you can now and try to increase savings over time."

Don't miss: Why there's never been a better time for millennials to contribute to a Roth IRA

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