Many Americans aren’t saving enough for retirement. The reasons for this vary, but the obvious one is that it’s challenging to find extra money in your paycheck for retirement if you’re battling the rising costs of living and unprecedented levels of household debt.
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Although it might seem like there’s no room in your budget to save for retirement, even a little bit goes a long way. To help you see the power of putting aside a small sum for retirement each month, GOBankingRates determined how much you’d have if you put $100 in an investment account each month, with an annual rate of return of 6.5%.
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Your Retirement Savings If You Save $100 a Month in a 401(k)
Saving $100 a month in a very conservative vehicle, like a basic savings account, results in much lower retirement savings than investing in the stock market via a 401(k). If you’re age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.
Around 86% of employers with 401(k) plans offer some kind of employee match, according to the Society for Human Resource Management. But even if your employer doesn’t offer a match, the retirement savings you earn from investing in stocks through a 401(k) is considerably higher. Using a slightly conservative rate of return of 6.5% — the historical average for the S&P 500 is higher, more like 7%-10% — results in far more savings down the road.
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If you started putting your money into a 401(k) today at age 25 and saved for 40 years, you’d have $218,107 saved by age 65, and that’s with no employer contribution. If you received a 3% match from your employer, your 401(k) savings would jump to $436,215.
Take a look below at how much you’d have saved by 65, based on which age you started saving.
Age at Start of Investing
Birth Year
401(k) Retirement Savings
Savings With 3% 401(k) Matching
25
1998
$218,107
$436,215
30
1993
$154,032
$308,063
35
1988
$107,264
$214,528
40
1983
$73,129
$146,259
45
1978
$48,215
$96,430
50
1973
$30,030
$60,061
55
1968
$16,758
$33,516
60
1963
$7,071
$14,141
Less frequent than no match is employers who offer a partial match — for example, 50 cents on the dollar up to 6% of employee salary. The median match is 3% of employee salary, according to a Vanguard study. Based on the same parameters above, you’d save approximately $327,161 by age 65 if you put away $100 a month with a 3% partial employer match of your salary.
How To Save for Retirement
The simplest way to increase your retirement savings is to increase your monthly contribution. For the purposes of this study, $100 contributed a month was used, for an annual contribution of $1,200.
You could certainly crank that up if you wish by contributing more — depending on what your budget permits — contributing every paycheck and getting your employer’s maximum contribution match.
Another strategy is to open and maintain several vehicles for retirement savings. For instance, you can have a 401(k) through your employer while at the same time contributing to an IRA outside of work. Plus, IRAs tend to offer a wider variety of investment options than the average 401(k) plan.
The good news is, retirement costs can be modified and reduced based on geography. The basic fact is that some states and cities have cheaper costs of living than others, better taxes on retirees, more affordable homes or many other factors. Some states even tax Social Security, so where you choose to retire certainly affects how quickly you use up your savings.
James Holbach contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: How Much Would You Have for Retirement If You Saved $100 a Month?
If you start saving $100 a month with a 6% average annualized return on your investment, you'd have about $46,000 in 20 years. But if you wait 10 years to start saving and invest the same amount, you'd wind up with just $17,000 two decades from now, since you missed out on some of that early compound growth.
Your Retirement Savings If You Save $100 a Month in a 401(k)
If you're age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.
If you save $100 monthly for an entire year, you'll have $1,200 in the bank. But if you keep your savings in a savings account, you'll also earn interest. After one year of keeping $1,200 in a high-yield savings account with a 4.5% APY, you'll earn $54 in interest.
If you were to invest $200 per month over the course of the next 30 years, that would equate to a total investment of $72,000. That's significant, but it's through the effects of compounding that would get your portfolio to a more than $1 million valuation.
If you're still investing $100 per month, you'd have a total of around $518,000 after 35 years, compared to $325,000 in that time period with a 10% return. There are never any guarantees in the stock market, but with the right strategy, a little cash can go a long way.
But by depositing an additional $100 each month into your savings account, you'd end up with $29,648 after 10 years, when compounded daily. The interest would be $7,648 on total deposits of $22,000.
In that case, investing $100 a month over 40 years will leave you with an ending balance of around $531,000. Meanwhile, you'll only be contributing a total of $48,000 to get to that point. So all told, you're looking at a $483,000 gain, which is pretty impressive.
You plan to invest $100 per month for five years and expect a 6% return. In this case, you would contribute $6,000 over your investment timeline. At the end of the term, your portfolio would be worth $6,949. With that, your portfolio would earn around $950 in returns during your five years of contributions.
The table below shows the present value (PV) of $3,000 in 20 years for interest rates from 2% to 30%. As you will see, the future value of $3,000 over 20 years can range from $4,457.84 to $570,148.91.
The answer is yes, almost 1 in 3 retirees today are spending between $2,000 and $3,999 per month, implying that $4,000 is a good monthly income for a retiree.
Top the amount with 401(k) savings, living on $3,000 a month after taxes is possible for a retiree. For those who only have social security benefits to rely on, there are many places where they can retire on their checks both in the USA and around the world.
If you start saving $500 a month for your retirement fund at the age of 30, you'll still be setting yourself up for greater financial stability when retirement arrives. By stashing away that much each month, you can expect to accumulate around $400,000 by the time you reach 60.
According to this rule, one should aim to save $240,000 for every $1,000 of monthly income they anticipate requiring during retirement. To put it simply, if your retirement budget is projected to be $4,000 per month, then your savings goal would be $960,000 ($240,000 * 4).
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