During America Saves Week, an annual campaign, Fidelity urges people to start saving as early as possible, and if they can, increase savings each year during the campaign, even if only by a small amount.
Fidelity recommends participants save 15% toward retirement, including their pre-tax deferrals and any contributions their employers make.
Last year, Fidelity examined the benefit of increasing 401(k) or 403(b) savings by just 1% for people ages 25 to 55. Each age saw additional estimated monthly retirement income, especially the 25-year-old. This year Fidelity took the analysis a step further, studying three increase scenarios to demonstrate the power of establishing ongoing savings rituals when young.
First, a 25-year-old earning $40,000 who increases his deferral this year by 1% could receive additional income in retirement of $190 per month.
Fidelity recognizes that Millennials will have a lot of expenses during their working lives, such as saving for a home, paying off student debt or unexpected health care costs. With this in mind, Fidelity studied the benefit of increasing savings by 1% every five years for a total increase of 5% over 25 years. Those who adopt this pattern could receive $690 more in monthly retirement income.
The impact is even greater if a 25-year-old begins a savings ritual where they increase their deferral by 1% annually for a total of 12 increases. Under this scenario, he could receive $1,930 per month in extra retirement income.NEXT: Lessons for plan sponsors and participants
“Saving 1% at a point in time, and bumping up savings by 1% every year is good,” Katie Taylor, director of Thought Leadership at Fidelity in Boston, tells PLANADVISER. “But what about those in the middle with competing financial priorities?”
Taylor says employees understand the need to increase savings every year, but feel like they can’t. Fidelity’s scenario shows the benefit of increasing savings every so often.
“We had a really successful campaign last year. Some folks are intimidated and feel can’t save any more, but seeing what 1% can do encourages them,” Taylor adds.
She noted that plan sponsors are challenged a little bit with how to engage participants to save more, particularly with Millennials for whom retirement is so far away. “Using America Saves Week and tools and resources available will help plan sponsors with a strategy to help individuals save more,” she says.
However, encouragement doesn’t just have to come during America Saves week; plan sponsors can promote more savings when employees get a raise, at the beginning of the year and at the end of the year, according to Taylor.
She adds that overall financial wellness tools and education can help employees with budgeting, debt and college savings. “And, plan sponsors can use automatic enrollment, automatic deferral escalation and campaigns such as America Saves Week to encourage employees to save and save more.”NEXT: Resources Fidelity offers
Fidelity offers many resources for retirement plan participants.
- Join the conversation tomorrow during Fidelity’s Twitter Chat on Tuesday, February 23 from 2:00-3:00 p.m. ET by following #AutoSave16, @Jeanne_Fidelity, @SweeneyFidelity or @Fidelity;
- Register for the Empowering Conversations Webcast on March 8 to help women learn to prepare for the unexpected;
- Learn your Retirement Score, an estimate of your ability to cover expenses in retirement;
- Have a child working? Give them a jumpstart on retirement saving and help them learn the power of compounding by opening a Roth IRA for Kids; and
- Visit Fidelity Viewpoints for education about college savings, paying off debt, Social Security, health care and how one percent more can make a big difference.
Fidelity also offers a savings and spending checkup.