According to Google, the third-most popular New Year’s resolution is to save more money — but saving money is not always as easy as it sounds. It takes time and discipline. For many of us, as soon as we get our savings built up, we go out and splurge, buying that new car or gun that we’ve had our eyes on. This is something I have been guilty of in the past. However, there is one easy way available for us to save money without having the temptation of spending it right away. This option is your deferred compensation plan.

With this new year comes new changes to the contribution limits of your deferred compensation plan. Last year, we were able to contribute $23,000 a year. This year, the government has increased the cap by $500 to $23,500 a year. If you’re 50 or older, you have a catch-up provision available that enables you to contribute an extra $7,500 a year in addition to the $23,500. I know that a lot of us cannot afford to max out our accounts, but I want to remind you that your deferred compensation is one of the most important investments when it comes to your retirement behind your pension.

You don’t have to max this benefit out, but you should have a goal to put something into your deferred compensation, no matter how small the amount is. Every dollar you put into this account will multiply over the years due to “compounding interest.” The longer you have to invest, the more interest you’ll earn. For example, if someone invests just $100 a paycheck for 30 years and earns 7% annually on their investments, their deferred compensation account will be worth north of $245,000.

A good way to increase your contributions without noticing an impact on your paycheck is to increase your contributions whenever you receive a raise. I always planned on keeping half of my raise and contributing the other half to my deferred compensation. That way, you get a raise, and so does your deferred compensation account.

If you do wish to increase your contributions this year, you’ll have to into your Fidelity account. From there, you’ll have to navigate to the change contribution link and enter the desired percentage that you plan on contributing. I get asked from time to time about other investments available. Mostly, they bring up whole-life products that have a cash value aspect. The advice I always give is to always max out your deferred compensation account first, then a Roth or traditional IRA, before you start investing in other products. I give this advice because these accounts offer some form of tax advantage to your retirement savings.

If you are interested in opening an IRA, which stands for an “individual retirement account,” here are some of the basics. You can contribute $7,000 a year into a Roth IRA, and if you are 50 or older, you can contribute $8,000 a year. The main difference between an IRA and your deferred compensation is when you can withdraw your money.

With the deferred compensation plan, you can withdraw your money penalty-free when you separate from the Department. With the IRA, you can withdraw your money penalty-free after the age of 59 1/2 or for certain qualified life events. 

One of the most important things you can do during your career is to save and prepare financially for retirement. If you have any questions about retirement planning, feel free to reach out to me.