The Importance of Your Contributions
When it comes to working toward a more secure retirement, there are many strategies: asset allocation and diversification,1 controlled spending and delayed Social Security, to name just a few. Sometimes, however, the best way to take control of your financial future might be simply increasing your retirement plan contribution amount.
The Numerous Benefits of Increasing Your Contributions
Higher Contributions Can Drive Your Savings
Higher Contributions Can Let You Take Full Advantage of Matching Contributions
Higher Contributions Put You in the Driverís Seat
The Difference Small Contribution Increases Can Make
The amount you contribute to your retirement plan may have a big impact on your standard of living in retirement. But did you know that increasing your contributions by just a small amount today may help to boost your finances in retirement?
For example, if you contribute just $5 more per week to your account and that $5 earns 6% annually, those increased contributions could potentially add $10,138 to your account over 20 years.2 When that $5 is invested, compounding on your increased contribution happens automatically. Regardless of your age, the longer your money is invested, the greater the chance it has to benefit from compounding—when your earnings stay invested to potentially generate even greater earnings over time. To learn more, be sure to visit Time Is Money: The Magic of Compounding
Another Option: Roth Contributions
In addition to before-tax contributions, your retirement plan4 may allow you to make Roth (also referred to as "after-tax") contributions.
When you choose to make Roth contributions, taxes are taken from your paycheck and then your Roth contributions are made to your retirement plan account. Roth contributions and any investment returns, like traditional contributions made to your retirement plan, grow tax deferred until retirement—as long as you meet certain qualifications. For more information, read The Roth Contribution Option...Another Way to Prepare for a Secure Retirement.
How Much Should You Contribute?
Only you can decide how much is the right amount to contribute to your plan account. But to help you decide, you can take advantage of the informative articles and calculators available through this site, Prudential Retirement’s participant website—or you may also wish to consult an investment professional for assistance.
One thing, however, is certain: Contributing enough to your retirement account today is one of the most important things you can do to help ensure you’ll have the kind of financial future you want.
1 Keep in mind that application of asset allocation and diversification concepts does not assure a profit or protect against loss in a declining market. It is possible to lose money by investing in securities.
2 Source: Investment Returns Calculator. This compounding concept is for illustrative purposes only and is not intended to represent performance of any specific investment, which may fluctuate. No taxes are considered in the calculations. Assumed 6% rate of return for a portfolio that includes variable investments. Based on a hypothetical rate of return of 6% annual interest compounded monthly.
3 Amounts withdrawn are subject to income taxes and potentially a 10% federal income tax penalty if taken before age 59 ½ (457 plans not subject to 10% penalty). Prudential Financial and its representatives are not tax or legal advisors. Consult your own legal or tax advisor with specific questions.
4 Subject to plan design; not available with all plans. Contact your plan administrator for more information.