If you're struggling to save enough for retirement, you're far from alone. The median amount baby boomers have saved for retirement is just $152,000, according to a report from the Transamerica Center for Retirement Studies. Even if you spend a modest $30,000 per year in retirement, those savings will only last around five years.
The hard truth is that you'll likely need hundreds of thousands of dollars stashed away to last through your golden years. Pensions are a thing of the past for most workers, and Social Security benefits aren't designed to be your sole source of income -- so you're likely going to have to lean heavily on your savings to make ends meet in retirement.
Fortunately, new research shows that one easy move can help you boost your retirement fund by tens of thousands of dollars.
The easy way to save more for retirement
If you're already saving for retirement, give yourself a pat on the back. But saving for the future isn't a "set it and forget it" type of situation. Rather, you should be increasing your contributions on a relatively consistent basis. Even if you don't boost your contribution rate significantly, it can have a major effect on your savings in the long run.
In fact, increasing your retirement contributions by just 1% can seriously boost your savings. If you're earning a salary of $60,000 at age 35, upping your savings by 1% can help you save an additional $85,492 by age 67, according to research from Fidelity Investments. The calculations also assume you're earning a 5.5% annual rate of return on your investments, which is fairly conservative -- meaning your savings could grow even more dramatically if you're earning a higher rate of return.
Small adjustments can result in big savings thanks to compound interest, which is when you earn interest on your interest. So your savings essentially snowball the longer they sit untouched in your retirement fund, and as a result, saving just a little bit now can add up significantly over time.
For example, if you were to invest $1,000 today and then let that money sit for 30 years earning a 7% annual rate of return, you'd end up with around $7,612 -- even if you never contributed another dime to your retirement account. So when you increase your savings consistently -- even if it's just by a few dollars per week -- your money grows exponentially.
Prioritizing your savings when you're strapped for cash
Even if you understand the importance of saving more, sometimes it can be tough to put a plan into action. If you're having trouble prioritizing your savings, one trick is to set up automatic retirement contributions. By automatically transferring a portion of each paycheck or a set amount from your bank account to your retirement fund each week or month, you can easily build those savings into your budget. And if you're able to transfer part of your paycheck directly to your retirement account, that can help you avoid spending it since it never reaches your bank account in the first place.
In addition, saving a set percentage of your salary can make it easier to increase your contributions over time. If you save, say, 15% of your salary, you'll automatically boost the amount you're saving whenever you get a bonus or raise. And if you increase your savings by just 1%, that may only amount to a few dollars each week, but it can add up to tens of thousands of dollars by the time you retire.
It can also help to gradually increase your savings rate year over year. Going from saving nothing to saving hundreds of dollars per month can be a shock to your budget. But if you're currently saving, say, 10% of your salary and you eventually want to be saving around 20% of your income, try boosting your contribution rate by just 1% every six months or so. When you increase your savings gradually over time, it's easier to stick to your savings plan because the changes won't feel so drastic.
Saving isn't easy, especially if you don't have much cash to spare. But the good news is that small changes to your budget can amount to significant gains over time, and sometimes all it takes is saving a little bit more now to grow a stronger and healthier nest egg by the time you retire.