Power of 1%

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I want to share a story with you that happened this week. It was interesting. I had a meeting with a participant and we were talking about the power of 1% and how it could help him become a 401(k) Superhero.

I was having a conversation with the participant this week and he was in his thirties. And what was interesting is, is he asked me a question... He said, Jonathon, what's the one thing I can do that makes the biggest impact in saving for retirement?

And you know, it's interesting, I get that question a lot. People often think that picking investments, being more aggressive, changing their investment allocation, or sometimes people want to chase investments increases, but actually, what I talked to him about wasn't anything about investments. It was just making small 1% increases in what he saves for toward retirement.

You know, it's interesting that making small 1% increases is a way bigger impact even than chasing investments. And so here's what was cool, I pulled out my financial calculator. You know I'm a nerd so I got to keep all these silly calculators, right? I pulled up my financial calculator and I showed him that if he made a 1% increase, just a 1% increase in what he's saving for retirement and for every 1% that he puts away, it was like $150,000 at retirement. I mean, think about that, right?

So then, I actually quantified the number for him based on his salary. 1% was going to cost him like $8.65. For every $8.65 that he put away was an extra $150,000 in retirement. And so then I said, what about this?

What if you went up by 1% this year? 1% next year. That's $300,000. And, 1% the next year... If you did it for five years, that's like almost 750,000 more dollars that he'd have for retirement. A huge difference, and a big impact. I don't think you could increase your 401(k) savings by $750,000 just by chasing investments alone. It is that power of 1%.

And so as we started looking at this, the one thing that he talked about is he said, you know, what would I need to do to actually be able to retire early? And so we started doing some calculations, and what he decided to do is instead of doing 1%, he would do 2% a year.

Think about that, it's only $16 right now if you did 2%, remember the same math. If 1% a year for five years was like $750,000. Hypothetically, you would think 2% a year for five years will be close to $1.5 million more retired. And so now he's looking at this and his goal is to actually be able to retire early just by using the power of not 1% but the power of 2%.

So that's the thing, I think anybody can actually use this little strategy to have an early retirement and become a 401(k) Superhero to their future self.

Yeah, Jonathon, I could not agree more. I've always said you can't invest your way to retirement. You have to save your way to retirement. So hey guys, if you're interested in what the power of 1% could look like for your retirement and you want to get out that financial calculator with a member of our team at SRP and see what that impact could be for your paycheck today, but also for your future down the road, click on the link below to schedule a consultation with a member of our team. And, we'd love to go through this exercise with you and make sure you're doing your best to save yourself to retirement and become a 401(k) Superhero.