Pennies on the dollar viewpoint could increase savings
Seeing your DCP contributions as pennies on the dollar could lead to greater savings.
There are two ways to contribute to DCP. You can choose to invest a set dollar amount every month, or you can opt to invest a percentage of your gross pay.
One way to make sure you’re putting away a smart amount is to think of your savings as a pennies-on-the-dollar amount rather than a percentage. If you’re saving 10% of your income, that’s 10 pennies for every dollar earned.
A recent study by VOYA found that some people have trouble understanding and calculating percentages. The study also showed that workers who were shown an enrollment screen with their savings amount in percentages chose to put away an average of 6.9%, while the workers who were shown the savings in pennies per dollar saved an average of 8%.
According to the UCLA Anderson School of Management, this change in information architecture has the potential to boost retirement income by almost 20% if implemented over an entire career. More importantly, it reduces longstanding gaps in savings behavior, making it easier for lower-income employees to better prepare for retirement.
DCP contributions are deducted from each paycheck. If your employer offers DCP, you can sign up by submitting an enrollment form. With DCP, you can increase or cancel your contributions at any time. DCP also offers an auto-escalation option, which automatically raises your contribution based on a frequency you choose. In your DCP account, visit “Contributions and Savings”, “Manage Contributions” and “Choose Set up Now” to create an automatic increase for your contributions.
DCP funds are professionally managed investment options. You can select your investments or have your contributions automatically invested in the target date fund for your age. All funds are managed by the Washington State Investment Board.
While retirement may seem far away, time does go by fast. Pennies invested now grow into dollars for your retirement. How much are you saving?
Find out more about DCP.
Fill out an enrollment form.
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The Office of the State Actuary prepared this example to assist DRS with developing a general educational resource.
