How Saving an Extra $12 a Week in Your $401K Could Make You $85,492 Richer in Retirement

• Fewer than half of Americans save enough for their 401K
• But increasing your investment rates by just 1% can make a huge difference
• Experts find out how much money you need to save for a comfortable retirement

Americans are sleeping through financial disaster after it was revealed that less than half of households have money in their 401k pots.

Sizzling inflation has caused young people to put off their savings plans, but it could leave them working into their 70s to make up for it.

The problem is compounded by the stock market turmoil, which saw the average 401k fund fall 20 percent from $130,700 in the last quarter of 2021 to $103,900 late last year.

But financial experts say the smallest of changes can transform your retirement dreams.

An analysis by Fidelity International, the largest provider of 401k plans in the U.S., found that a 35-year-old on $60,000 could earn an extra $85,492 in retirement if they increased their retirement contributions by a modest 1 percent.

In real terms, that would mean saving just $12 a week.

That works out to about two and a half coffees a week, or ten coffees a month, which cost an average of $4.90 each, according to data analytics firm NPD.

Meanwhile, a 45-year-old man earning $70,000 could increase the value of his 401K by $49,925 if they increased their investments by 1 percent between now and retirement.

These workers would need to sacrifice an additional $14 per week, according to Fidelity’s analysis.

The third example given by the company is a 55-year-old man with a salary of $80,000.

By increasing their contributions by 1 percent, or $16 per week, they can accumulate an additional $16,779 by the time they retire.

The analysis assumes workers retire at age 67 and benefit from nominal investment growth of 5.5 percent.

Fidelity Vice President Ann Dowd said: “Saving for retirement can seem like a steep mountain to climb, but the climb doesn’t have to be as steep as it seems.

“Small steps now can turn into big steps later.”

Most US workers rely on an employer-sponsored 401K for their retirement plan.

According to investment firm Vanguard, approximately 62 percent of U.S. businesses offer 401k plans with automatic enrollment policies.

Automatic enrollment means that a portion of an employee’s paycheck goes directly to their 401k paycheck, which is then matched or partially matched by the employer.

The Financial Industry Regulatory Authority says most employers use a 3 percent down payment.

However, employees are encouraged to increase these contributions, especially as their wages increase.

And it’s critical that employees start saving as early as possible to allow more time for their money to grow through compound interest; that’s when you earn interest on both the money you initially put aside and the interest you’ve already accrued.

For example, if you invested $10,000 at a 10 percent annual return, you would have $11,000 after one year. Next year, 10 percent interest is applied to $11,000 instead of the original rate.

That means in ten years your $10,000 pot will grow to $25,937.

But rising inflation, fueled in part by Russia’s invasion of Ukraine, means households are saving less and less.

Yesterday, it was revealed that a paltry 29 percent of Americans are on track to cover all of their retirement expenses, up from 38 percent in 2020.

And it’s young people who have borne the brunt of the crisis, with 55 percent of 18- to 35-year-olds saying they’ve had to stop saving.

The latest numbers show that only 28 percent of millennials and Gen Zers, those under 42, are on track to cover all of their retirement costs, compared to 33 percent of baby boomers and 29 percent of Gen Xers.

Baby boomers are those aged 59 to 77, while Generation X refers to people aged 43 to 58.

Across all generations, 11 percent of Americans were unable to meet their retirement needs at all unless they made significant lifestyle changes.