I’m 48 years old and have $223,000 saved for retirement. I want to contribute an extra 1% every year. Will this have any meaningful impact?

Alessandra Malito

“I expect this could have a big impact, although my retirement horizon is a little short.”

Dear, help me retire,

I’ve been looking for a resource to calculate the financial impact of saving 1% annually in retirement, but have had no luck. Most advice is tied to 401(k) calculators, and such advice does not involve saving beyond the 401(k) contribution limit, which I am well over because I have an employee contribution plan, 403(b) and 457 plans.

My annual salary is $207,000. I’m 48 years old with $223,000 in retirement savings, so I’m trying to actively save to catch up. My current pre-tax retirement contribution rate is 26% per year between my defined contribution plan and the optional 403(b) and 457 plans. I pay 14% and the employer pays 12% of my salary.

I expect the average salary increase to be only 2% each year since my employer gives 1%-3% raises most years, but not always. I want to increase my retirement savings by 1% each year, so when I turn 49 I’ll save 27%, and when I turn 50 I’ll save 28%, and so on. I expect this could have a big impact, although my retirement horizon is a bit short.

Any ideas on this concept of increasing savings or resources for calculations?

Catching up

Related: “I Own My Home”: I’m 74 years old, have an annuity of $300,000, and live frugally. What should I do with my pension savings?

Dear Catching Up,

It’s always nice to hear someone talk about increasing their retirement savings every year. With so many financial responsibilities in life, retirement can often fall by the wayside, even though savings (however small) can accumulate a decent amount of money for the future. There’s just so much to pay for, and so many people struggling to do it all. If this was you a few years ago and the reason you’re so eager to catch up now, I applaud you: you’re on the right track, and this is the best place for you.

To answer your question about the calculator, yes, searching for the right calculator to help you understand your finances can be tedious. Sure, you can create spreadsheets, but it takes time and research, and if you forget one or two factors, you won’t actually get accurate information. I must warn you that the same is true of every other known calculator: the answers are only as accurate as the data you enter, so be sure to think carefully about factors beyond your control (such as rate of return, inflation and/or interest).

However, calculators can be a great way to understand where you are and where you are going. I’ve looked at some calculators and this one from Human Interest may help you based on your needs. You can enter your current retirement account balance and your age, and then adjust your contributions each year. You’ll then see a projected inflation-adjusted amount you could see in retirement.

While you’re working on building your savings, I have other suggestions. Make sure you also have an emergency savings account. It’s great that you’re trying so hard to save for retirement, but an emergency fund can help you offset any big unexpected expenses. An emergency may not only keep you from saving for retirement, but it may even force you to withdraw some of those savings to pay for those unexpected expenses.

Do you have questions about retirement, Social Security, where to live and how to even afford it? We want to hear your opinion. Join the conversation in our Facebook community: Retire Better with MarketWatch.

Also consider diversifying in several ways. Make sure you have a proper breakdown of your goals and deadlines. Also, think about future tax obligations: There are two main types of retirement accounts: traditional, which are funded with pre-tax dollars, and Roth accounts, which are funded with after-tax dollars.

Roth accounts are generally great for people who expect to earn more in the coming years, since Roth withdrawals are tax-free on distribution (as long as all the rules are met). Given your income, you may not be able to contribute directly to a Roth IRA—you might even think that’s crazy—but some experts encourage savers to still contribute at least some money to this type of account.

Roth IRAs have income limits on contributions, but those limits do not apply to conversions. “If they want to contribute to a Roth even if their income is too high, they can do a backdoor Roth, where you contribute to a nondeductible IRA and then convert it,” said Ed Slott, a certified public accountant and IRA expert. MarketWatch. “You’ll end up in the same place.”

Having multiple types of accounts gives you more control over how you use your retirement savings in the future, as you can decide to take mixed distributions from both accounts in one year or rely more heavily on a Roth if you have there are other incomes. We can’t predict tax rates, but we do know that the current tax brackets set under the Tax Cuts and Jobs Act expire next year.

Your retirement horizon may be “a little short” (as you put it), but you’re right that by having a plan like this, you’ll see a big impact on your future financial well-being. Just stick to your goals, be willing to be flexible when life throws you curve balls, and keep at it.

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Have questions about your own retirement savings? Email us at [email protected].

-Alessandra Malito

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29.10.24 0539ET

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