The '1% More' Rule: Why This Tiny Change is the Most Powerful Habit for Pre-Retirees
Adding just 1% more can have a transformative impact on your retirement savings and spending. See how this painless hack works.
Adding 1% more to your retirement savings every year sounds minor, but the math tells a different story. This almost invisible hack uses behavioral science to build wealth on autopilot, without the sting of a smaller paycheck. For pre-retirees, it isn't just a suggestion; it’s a rule that can redefine your 2026 planning outlook.
"For a lot of people, 1% is a throwaway number," says Steve Parrish, professor of Practice, Retirement Planning at The American College of Financial Services. "But if you put away 1% extra per year each year with compound interest, it can have a nice leveraging effect. Two percent feels a little more painful."
Plus, if you apply it in retirement, it can help you open the purse strings a little more, making it a rule for all.
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The 1% more rule in action
Designed in the late '90s to kill savings procrastination, the idea is simple: increase your savings rate by 1% every year or every time you get a raise.
Behavioral economists Shlomo Benartzi and Richard Thaler — the brains behind the concept — chose 1% because it’s painless, allowing you to save more without feeling a lifestyle squeeze.
This was the foundation of the Save More Tomorrow (SMarT) program, which spurred the auto-escalation feature in modern 401(k) plans. Those who followed it effectively tripled their savings rates, simply because the process was automatic and let compounding do the heavy lifting.
Take this illustration for an example: Increasing your contribution from 5% to 6% on a $125,000 salary adds a painless $104 a month, yet can grow a $1,000 starting balance to $333,000 in 20 years. That is about $55,000 more than if you had stuck with 5%.
"Saving for retirement is like getting in shape. It's not about going from zero to working out seven days a week," says Nick Nefouse, global head of retirement solutions and head of LifePath at BlackRock. "It's making small, incremental steps to drive better outcomes in the future."
Make it automatic
Just because the law requires most new 401(k) plans to have auto-enrollment and auto-escalation doesn't mean you can't increase your contributions by an extra 1% each year, either manually or automatically. The same goes for any savings, brokerage, or retirement accounts.
Make it automatic to ensure you never skip an increase. As you go along, if you find you can absorb more, go for it. One percent may be the floor; your rule could be 2%, 5%, or even 10% more, depending on your situation.
The 1% rule works for spending, too
The 1% more rule is a great way for pre-retirees to amp up their savings, but it can also be an effective way for retirees to spend more in retirement.
After all, spending money can be tough after decades of saving. But 1% more could be the baby step a person needs to live a little more during their golden years.
"We're not used to seeing money out and not money in," says Parrish. "By saying you can spend 1%, you are giving yourself a license to enjoy your retirement. You are giving yourself a raise each year." However, this strategy only applies to people who have enough money and are still reluctant to spend.
It's the little things
Preparing for retirement doesn’t have to be about big, sweeping gestures alone. Often, it’s the little things that add up — especially when you have years and the power of compounding behind you. Even in retirement, small shifts can spark significant change.
Whether your goal is to save more now or spend more later, 1% won't break your budget, but it can absolutely transform your future.
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