Five small changes in retirement planning that get big results

If you’ve ever run a retirement planning calculation to estimate how much you need to save, you know the numbers that come back can seem daunting. A recommended goal upward of $4 million is not uncommon.

When you’re a few decades and many, many dollars away from achieving that goal, giving up or delaying can seem like the easiest answer. But the earlier you can start saving, the better. Giving yourself a longer time horizon puts compound interest on your side, which means you can put less money away and still build a solid nest egg over time.

That’s the first step: Start saving today, with whatever you have. If you start with $100 and invest that each month at a 7% annual return, in 30 years you’ll have more than $100,000.

But in all likelihood, you’ll need and want more than that. Here are five ways to boost your efforts and reach your retirement goals:

1. Make gradual increases

Most financial advisors recommend saving at least 15% of your income, but if you’re not quite ready to do that yet, see if your 401(k) allows you to opt into auto-escalation. This feature slowly kicks your contribution percentage up a point or two every year. The benefit is that you’re slowly and steadily increasing the amount you put away in a way that is unlikely to hurt your budget — in fact, you might not even notice the change to your paycheck. (If you do, you can always decrease your contributions.) If your plan doesn’t offer this option, set a reminder on your calendar to manually bump up your contribution once a year.

Amount saved: For a 30-year-old with a $50,000 salary, raising retirement-plan contributions by just 1 percentage point each year (topping out at 15%) could mean a difference of over $600,000 at retirement, assuming a 7% annual return.

2. Bank a windfall

If your salary increases, that’s a great time to increase your retirement contributions. If you get an end-of-year bonus, put away half. As for your annual tax refund? The smartest move is to aim not to get one, as it’s effectively allowing the IRS to borrow your money throughout the year, interest-free, and pay you back the following April. Instead, use thisIRS withholding calculator to figure out how much should actually be pulled out of your paycheck for taxes. If you’ve been overpaying, take that excess and turn it into a 401(k) contribution each month.

Amount saved: Investing an extra $2,500 each year from a salary increase, bonus, windfall or a combination of all three could add $370,000 to your savings over 35 years, assuming a 7% annual return.

3. Squirrel away savings

You’ll find many valid tips out there for how to save money, from cutting out cable to using coupons to limiting takeout.

But it’s all too easy to spend the money you’d save by doing those things if you don’t immediately take action to get it into savings. When you call your cable company and get rid of a premium cable challen, immediately boost your retirement contributions by that $18 a month. If you get a discount on your car insurance, or your mortgage payment drops because of an escrow balance, or you refinance your student loans, put the savings you realize into your retirement account.

Amount saved: Just saving that $18 monthly cable tab could add up to over $30,000 over 35 years, assuming a 7% annual return. That’s not a full retirement, but it’s certainly something.

4. Lower investment expenses

Expenses can have a huge impact on your retirement portfolio, particularly in a 401(k). 401(k)s generally have two main sources of fees: investment expenses and administrative costs, which employers often pass through to plan participants. You can’t do much about the latter, but the former is within your control: Select low-cost index funds, which tend to be less expensive than pricier target date funds.

If your employer contributes matching dollars to your 401(k), contribute as much as you need to get the full match. Then consider switching your focus to an IRA (either a Roth or traditional), which often has lower fees and a wider range of inexpensive investment options. Employees at smaller firms in particular would benefit from this: A Deloitte/Investment Company Institute report showed that 401(k) fees can be as high as 1.4% at companies with fewer than 10 employees, compared with 0.6% at larger companies with more assets.

Amount saved: Over 35 years, the difference between a 1.4% fee and a 0.6% fee could eat up $200,000 in returns on an initial $100,000 investment.

5. Change your perspective

So much of saving for retirement is a mental game, and behavioral finance research suggests our brains aren’t wired to save for something that is so far away; we’re much more likely to prioritize the present.

It might help to reframe the way you view things, says Ellen Rogin, a financial planner and author of “Picture Your Prosperity: Smart Money Moves to Turn Your Vision Into Reality.” She cites a piece of research in which one group of people was asked whether they could save 20% of their income; about half said yes. When a second group was asked if they could live on 80% of their income, 80% said yes.

“Of course, to save 20% of your income is exactly the same as living on 80%, so these results don’t make any logical sense. But it makes intuitive sense because of the way many of us view money,” Rogin says. To part with 20% of your cash flow feels like a loss; to live on 80% of your income is an adjustment, but it seems doable.

Amount saved: If you started with a $50,000 salary and consistently saved 20%, even if your salary never increased, you’d build more than $1.5 million over 35 years assuming a 7% average annual return. You’ll also become accustomed to living on 80% of your pay, which will make the transition to a lower income in retirement less severe.

Arielle O’Shea is a staff writer at NerdWallet, a personal finance website.