(Katie Brockman)
With retirement becoming more expensive, workers will need to save more than ever to make ends meet.
The average worker expects to need about $1.7 million to retire comfortably, according to a 2022 survey by Charles Schwab. Yet, according to a separate Vanguard report, the average 401(k) balance among workers is around $142,000.
Luckily, it’s easier than you think to increase your savings with just lifting a finger. Here’s how.
Image source: Getty Images.
Maximize your savings
One of the easiest and most effective ways to build a strong retirement fund is to take advantage of compound income.
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With compound income, you’ll get returns not just on the initial amount you invest, but on your entire account balance. The more you invest, the more your retirement fund will grow and the more you will earn.
Although it may seem confusing, the bottom line is that in order to save as much as possible, it is essential to invest regularly for as many years as possible.
Compound gains in action
Consistency is key to growing your savings, and compound income can allow you to save ten times as much with little or no effort.
Say, for example, you invest $1,000 and earn a modest 8% average annual rate of return on your investments. By simply leaving your money alone, you’ll accumulate around $10,000 after 30 years – assuming you don’t make any additional contributions.
To maximize your savings, you can continue to invest a little each month. Let’s say, for example, that in addition to your initial investment of $1,000, you also invest $200 per month. Here’s roughly how much you could earn over time, assuming you still earn an average annual return of 8%.
| Number of years | Total Savings |
|---|---|
| ten | $37,000 |
| 20 | $114,000 |
| 30 | $282,000 |
| 40 | $643,000 |
Source: Author’s calculations via Investor.gov
Enjoying compound income requires virtually no effort on your part, as all you have to do is invest regularly and leave your money alone for as many years as possible. From there, your investments do all the heavy lifting for you.
Save more for retirement
The more you are able to contribute to your retirement fund each month, the more you will accumulate over time. But it’s not always easy, especially in this economic climate.
The beauty of compound profits, however, is that you don’t have to invest a lot to see significant returns over time. Even if you were to invest just $20 per month, you would accumulate over $27,000 over 30 years, assuming an average annual return of 8%.
If money is tight and you can’t afford to invest right now, that’s okay. But if you have even a few dollars to spend, no amount is too small to start with. Time is your most valuable resource when it comes to saving for retirement, so saving a little now is better than putting it off until later.
Saving for retirement is tough, but compound income can make it a little easier. By investing what you can afford each month and giving your money as much time as possible to grow, you’ll be well on your way to building a healthy retirement nest egg.
The $18,984 Social Security premium that most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help boost your retirement income. For example: an easy trick could earn you up to $18,984 more…every year! Once you learn how to maximize your Social Security benefits, we believe you can retire confidently with the peace of mind we all seek. Just click here to find out how to learn more about these strategies.
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