Amazing Results with Auto Escalation

To be honest, technology is what has kept me sane for the past 20 years. I pay my bills automatically and have auto-increased all possible savings. If left to me, with my schedule and the craziness of a full life, I never would have saved, and my bills would likely be past due.

Remember the “Cobbler’s Son” story, where the son had no shoes? That could have been me – and as a CPA, I know better.

Automation ties into retirement: Consider it when planning, use it in the plan, and then revise once a year. Set it and go live life, keeping what you can on autopilot. This includes auto-escalation. If your company’s 401(k) plan does not provide for it, you should ask for it. It will clear your path for retiring on YOUR time.

Auto-escalation is one of the most effective saving tools available in a 401(k) plan because it increases savings gradually — often in ways employees barely notice in their paychecks. Behavioral finance research shows employees are far more likely to save successfully when the process is automated.¹

How Auto-Escalation Works

Auto-escalation automatically increases an employee’s salary deferral percentage at scheduled intervals, usually once per year. Many plans increase contributions by 1% annually until a selected cap is reached. Ten percent is a typical maximum.

Example of Automatic Annual Increases

With auto-escalation, the employee does not elect — thus, there is no proactive action they must take. This helps make the extra savings happen. Often, the employee does not notice this increase, especially if it is aligned with an annual pay adjustment — salary or bonus.

Deep Dive

Assume:

• You save $50 on the 15th of each month and $50 on the last day of each month (a total of $100 per month).
• The account earns 7% annually, compounded semi-monthly (24 times per year).
• You continue saving for 30 years.
• Deposits are made at the end of each semi-monthly period.

What Happens:

This illustrates the power of consistent saving and long-term compounding — even relatively modest contributions can grow substantially over 30 years. You only saved $36,000 but investments more than doubled that amount.

This is why starting now matters. Set and live life.

If your employer offers to match your savings, it is magical:

• You contribute: $36,000
• Your employer contributes: $36,000
• Total contributions: $72,000
• Your account grows: approximately $244,842
• Investment earnings: approximately $172,842

Starting early allows investments to do the work for you. Increasing the amount bridges the time gap as you get closer to retirement age.

It is hard to be disciplined. When you have a busy life, it is next to impossible to find the time to prioritize increased savings.

Ask your employer to include automatic escalation in your retirement plan.

Set and live life.