/How to Turn Your Tax Cut into Six-Figure Retirement Savings

How to Turn Your Tax Cut into Six-Figure Retirement Savings

February is here, and Americans are already noticing the Republican tax cut boost their paychecks. According to the Tax Policy Center, the average American will see an estimated tax cut of $1,200 in 2018.

So how do you turn greater take-home pay into higher retirement savings? It’s easy: Save, save, save.

For a 31-year-old, an additional $1,200 a year can translate into roughly $200,000 at age 65 if retirement investments earn eight percent a year—a standard return for a balanced fund of stocks and bonds. Even increasing retirement savings by $500 a year—about $20 per biweekly paycheck—can give a 31-year-old nearly $80,000 for retirement.

As Ken Hevert, senior vice president of retirement at Fidelity Investments, recently put it: “People get overwhelmed by big numbers like $1 million, but small numbers (even $20 a month) make a difference.”

The key is to stay disciplined and set aside money every paycheck. Budgeting remains a valuable tool. Roughly 50 percent of Americans won’t be able to cover essential expenses once they hit retirement if they stay on their current financial course. Nearly half of millennials, for example, have conservative asset allocations even though they can afford to take on more risk at a younger age.

Fortunately, you can separate yourself from the pack by saving just $20 a month. One day, it could become tens of thousands of dollars.