Ben Carlson at MarketWatch has produced interesting data on savings rates in
Opinion: How a slight edge in investing adds up to big money over time.
In his article he starts with a short story from Atul Gawande on how small changes have a big impact in the medical field where people look for big, miraculous changes. As an aside Dr. Gawande is one of my favorite authors and I highly recommend his
The Checklist Manifesto.
So, what is the impact of a small change in the saving rate? Carlson first looks at an example of a household income of $100,000 saving 10%/year and achieving an investment return of 8%. After 10 years this will produce a portfolio value of $132,822. Increasing the saving rate to 11% results in a portfolio of $146,104. He shows portfolio values for 1% incremental returns up to 15% where the portfolio value approaches $200,000.
It is important to note that the period is relatively short in terms of the saving horizon most retirement savers experience. In fact, most savers should be saving over a 30 year plus period!
Carlson also provides an interesting chart showing the impact of marginally increasing your saving rate. He starts, again, with 10% and then increases by 2% to 10.2%.
The big take away is that incremental changes have big impacts over longer periods of time (both in a person's health as well as their retirement program) but it is difficult to appreciate them because they are barely noticed in the beginning.
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