The 5% Savings Challenge

January 20, 2020  | By Kevin Smith

Ready to crank up the dial and build wealth faster? The best way to make financial progress is to set an achievable goal and create a system so you don’t have to think about it. Saving an additional 5% seems achievable, right?

Here is an example: two 45 year old couples earn $200,000 per year before taxes. One couple saves 15% per year and the other saves 20% per year. If they both average 8% returns per year, what is the difference in 20 years for the couple who saved more?

+$457,620

This gives the 20% savers some interesting options when they retire:
  • Take $18,304 additional annual income (using the 4% rule)
  • Pay off the mortgage
  • Retire a couple of years early
  • One extra big trip per year
  • Pay cash for a vacation home
Here are easy ways to save the extra 5%:
  • Increase 401(k) contributions by 5% (for the household)
  • Set up an automatic transfers of $833/month to a brokerage account (in this example)
  • A combination of both
Where will the money come from? Here are some ideas…
  • $200/month comes from tax savings if you put these funds into a pre-tax 401(k)
  • One stay-cation per year in place of airline travel and hotels
  • $100/month from subscription services you don’t really use
  • One less out-to-eat night per week (you are trying to eat healthier this year anyway)
  • Create a monthly Amazon budget – if there is one budget to create, this is probably it
Posted in: Saving
Kevin X. Smith, CFA
512.467.2003   |  [email protected]

Kevin is responsible for advising clients for whom he is the lead financial advisor. He also manages the operations and development of the firm, and oversees all of the investments of Austin Wealth Management clients. Kevin is on a mission…Read More




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