How To Effectively Make 401(k) Contribution That Will Grow Your Asset

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Effective Way to Grow your 401(k)

Have you wondered the life after retirement?  Many of you have retirement savings account such as 401(k) or IRA.  We are all concerned about the future and trying to do the best thing to save more for the retirement life.  We will be discussing how to effectively grow your 401(k).

I can’t emphasize enough to maximize savings for retirement.  You might be tempted to spend more in today’s life but it’s tough to live without having a stable income during retirement.  In fact, the effective way to grow your 401(k) is all about strategy and persistence.  You don’t have to have anything special.

How 401(k) Contribution Makes Difference?

Here are the examples of how 401(k) contribution would affect your retirement savings.

The comparison is performed between two contribution methods.  The first one is constant 6% salary contribution with no percentage change for the rest of life.  The second one is 6% contribution with 0.5% contribution percentage increase every year.  Other conditions remain the same as follows.  For the plan with 0.5% increment, once the contribution limit reaches to the maximum of $18,000 (for the tax year 2017), the amount of contribution remained the same for the rest of career.

The common conditions for two methods

  • Starting salary $50,000 per year
  • Salary growth 2.2% per year
  • Company Matching 6%
  • CAGR (Compounded Annual Growth Rate) 8%
  • Duration 35 year

401(k) balance with constant 6% contribution

YearSalaryContribution %Contribution401k balance
1 50,000 6.0% 3,000 6,480
5 54,547 6.0% 3,273 39,593
10 60,817 6.0% 3,649 102,319
15 67,808 6.0% 4,068 199,558
20 75,603 6.0% 4,536 348,092
25 84,293 6.0% 5,058 572,645
30 93,982 6.0% 5,639 909,620
35 104,785 6.0% 6,287 1,412,588

401(k) balance with 0.5% contribution increase

YearSalaryContribution %Contribution401(k) balance 
1 50,000 6.0% 3,000 6,480
5 54,547 8.5% 4,637 43,993
10 60,817 11.0% 6,690 123,296
15 67,808 13.5% 9,154 256,814
20 75,603 16.0% 12,096 473,124
25 84,293 18.5% 15,594 814,711
30 93,982 19.2% 18,000 1,341,698
35 104,785 17.2% 18,000 2,123,470

401(k) growth chart

Small Contribution Makes A Big Difference

As you can see above table, 0.5% increment will pay you extra $710,882 more when you retire over the course of 35 years.  It is going to take only $9.62 per bi-weekly paycheck for the first year and $18.07 for the year 30.  Although you may get extra disposal income, keeping these dollars in your pocket is not worth and missing a great deal of opportunity to grow your 401(k).  This calculation did not take the fact of contribution limit increase into account.  The IRS pushes up the contribution limit every once a while.  Therefore, you are able to contribute and grow your 401(k) more.

Especially, if you are a teenager or college graduate, maintain a discipline.  Resist an impulse to keep extra cash in your pocket.  Later, you will appreciate yourself when you retire.  Also this is not limited to retirement savings.  You don’t need that much stuff to comfortably live in your everyday life.  When you buy something, pessimistically simulate in your mind how it is going to be utilized. Whether it is optional or essential utility in your life.  Nurturing this mindset in the early age will save you tens of thousands of dollars.  Your life will become more productive as well.

Your Action Will Influence Your Retirement More Than Ever

In addition, we are getting into the aging nation.  Approximately 20% of population will be age 65 or older by 2030 [1].  It is more than 8% growth from 2012.  As can be seen, this suggests that your retirement social security benefit is supported by the fewer number of youth.  Some are not even born yet.  The Social Security Office is facing a financial challenge that the worker-to-beneficiary ratio will be decreased from 3.3 in 2005 to 2.1 in 2040 [2].  Thus, the aging nation and longer life expectancy will force annual social security payment less than previous years.

As long as it is strategic, it is never be too much to make more.  You never know what might going to happen.  There might be some unexpected event such as injury or disease.  Making an effort for the wellness of yourself in the future will also make your family well.


  1. An Aging Nation: The Older Population in the United States
    U.S. Census Bureau
    by Jennifer M. Ortman, Victoria A. Velkoff, and Howard Hogan
    Issued May 2014
  1. Coping with the Demographic Challenge: Fewer Children and Living Longer
    by Gayle L. Reznik, Dave Shoffner, and David A. Weaver
    U.S. Social Security Office
    Social Security Bulletin, Vol. 66, No. 4, 2005/2006

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