Voluntary Auto Increase

Retirement Planning... The Big Picture

What does it take to get retirement in good standing? 

The Common Denominator of financial planning, whether you are spending or saving, is knowing what 1% of pay looks like per pay period.Keep it simple and a small decision.

Most people need to save more — often a lot more — to build a nest egg that can meet their needs. Many financial experts recommend putting away 10 to 15 percent of your pay for retirement. There’s a relatively painless way to reach that goal by taking small steps toward increasing your deferral amount (Voluntary Auto Increase).

Take small steps:

  • Begin by contributing enough to receive your employer’s matching contribution
  • Consider gradually raising your contribution amount to 10 percent or higher
  • Raise your plan contributions once a year by an amount that’s easy to handle, on a date that’s easy to remember—say, 2 percent on your birthday. Thanks to the power of compounding (the earnings on your earnings), even small, regular increases in your plan contributions can make a big difference over time

Voluntary Auto Increase –
What is it?

  • Automatically increases your deferral by 1 % once or twice a year
    • Do you know what 1% of your pay is?
  • Gradual increases make it less noticeable in your take home pay
  • Choose a deferral % limit and check in date to keep track of your progress

Why is it important?

  • We always have intentions of increasing contributions but life sometimes gets in the way. VAI helps to keep you on track and does the work for you so you can focus on the other important things in life! 
  • You can opt to start or stop at any time – it’s never too late to start saving for your retirement! 
  • Talk to your retirement professional at Onward Financial Network to get started!

A little more can mean a lot

Let’s look at Marie and Maxine. These hypothetical twin sisters do almost everything together. Both work for the same company, earn the same salary ($30,000 a year), and start participating in the same retirement plan at age 35. In fact, just about the only difference is their savings approach:

Marie contributes 2 percent of her pay each year. Her salary rises 3 percent a year (and her contributions along with it), and her investments earn 6 percent a year on average. So, after 30 years of diligent saving, Marie will reach retirement with a nest egg worth $68,461.

Maxine gets the same pay raises, saves just as diligently, and has the same investments as her sister— except for one thing: She starts contributing 2 percent, but raises her rate by 1 percent each year on her birthday until she reaches 10 percent. She will keep saving that 10 percent for the next 22 years, until she retires by Marie’s side.

Maxine tells Marie that she’s never really noticed a difference in take-home pay as her savings rate rises. Instead, she looks forward to having $285,725 in her retirement fund by age 65. 

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