How saving $12 extra a week into your 401K could make you $85,492 richer in retirement 

Americans are sleepwalking into financial disaster after it was found that less than half of households have enough cash in their 401k pots.

Red-hot inflation has forced young people to put their savings plans on hold, but they may have to work into their 70s to compensate.

The problem is compounded by stock market turbulence, which caused the average 401K fund to fall 20 percent from $130,700 in the last quarter of 2021 to $103,900 at the end of last year.

But financial experts argue that only the smallest changes can change your retirement dreams.

Analysis by Fidelity International – the largest provider of 401k plans in the US – found that a $60,000 35-year-old could earn an additional $85,492 in retirement if they increased their retirement contributions by a modest 1 percent.

In real terms, it would mean saving just an extra $12 per week.

This equates to about two and a half takeout coffees a week — or ten a month — costing an average of $4.90 each, according to data analytics company NPD.

Meanwhile, a 45-year-old earning $70,000 could increase the value of his 401K by $49,925 if he increased his contributions by 1 percent between now and the time he retires.

According to Fidelity’s analysis, it would require an additional sacrifice of $14 per week for these workers.

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

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

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

Fidelity vice president Ann Dowd said, “Saving for retirement may seem like a steep mountain to climb, but the climb doesn’t have to be as steep as it seems.

‘Small steps now can become big steps later.’

Fidelity found that a measly 29 percent of people are on track to cover all their expenses when they retire, up from 38 percent in 2020.

The majority of American workers rely on an employer-sponsored 401K for their retirement plan.

According to investment firm Vanguard, about 62 percent of U.S. businesses offer 401K plans with auto-enrollment policies.

Auto-enrollment means that a fraction of an employee’s salary goes directly into their 401k from their salary, which is then matched or partially matched by the employer.

The financial industry regulatory authority says most employers use a standard 3 percent contribution.

However, employees are encouraged to increase these contributions – especially if their salary increases.

And it’s critical that employees start saving as early as possible to give their money more time to grow through compound interest — that’s when you earn interest on both the money you initially put aside and the interest you earn. you have already built.

For example, if you invested $10,000 with an annual return of 10 percent, you will have $11,000 after a year. The following year, the 10 percent interest is applied to the $11,000 instead of the original amount.

It means that your $10,000 pot will have grown to $25,937 in ten years.

About 11 percent of Americans were completely off track to meet their retirement needs — unless they made significant lifestyle changes

But rising inflation – partly caused by the Russian invasion of Ukraine – has made households less and less inclined to save.

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

And it is young people who bear the brunt of the crisis: 55 percent of 18 to 35-year-olds say they have been forced to suspend their savings.

The latest figures show that only 28 percent of millennials and Gen Zers — those up to age 42 — are on track to cover all of their retirement costs — compared to 33 percent of Baby Boomers and 29 percent of Generation X.

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

Across all generations, 11 percent of Americans were not at all on track to meet their retirement needs — unless they make major lifestyle changes.