It's more challenging than ever to prepare for retirement, and there's a good chance you'll need a substantial nest egg to enjoy your senior years comfortably. Few workers have access to pensions anymore, and Social Security is only designed to replace around 40% of your pre-retirement income. The bulk of your income, then, will likely need to come from your personal savings.
The good news is that it's easier than you might think to boost your retirement savings. By making this one simple move, you could potentially increase your savings by $60,000 or more.
The power of compound interest
If you're already saving for retirement, that's fantastic. But by increasing your savings rate by just 1%, compound interest can take your savings to the next level.
Compound interest is essentially when you earn interest on your interest. It's also key to helping your savings grow as quickly as possible.
When you take advantage of compound interest, even small contributions to your retirement fund can add up to tens of thousands of dollars over time. All you have to do is invest however much you can afford, then give your money as much time as possible to grow.
Boosting your savings
The median earnings among U.S. workers is around $998 per week, according to the Bureau of Labor Statistics. That amounts to roughly $52,000 per year. Most experts also recommend putting around 10% to 15% of your salary toward your retirement savings.
Say you're earning $52,000 per year and are saving 10% of that for retirement, or $5,200 per year. If you were earning a modest 8% average annual return on your investments, you'd accumulate around $589,000 after 30 years.
While that's certainly a healthy nest egg, you could earn even more. Say, for example, you increase your savings rate to 11% of your salary. That comes out to $5,720 per year -- just $520 per year more than you were previously saving.
At that rate, those savings can amount to around $648,000 after 30 years, all other factors remaining the same. That's a difference of nearly $60,000, and it requires very little effort on your part.
Making the most of your money
Increasing your savings rate by 1% may not sound like it would make much of a difference. Over time, though, it can add up significantly.
If you can't afford to boost your savings rate quite that much, that's OK. It's easy to fall into the trap of thinking that if you don't have much to save, you shouldn't save at all. But no amount is too small, and if you can only afford to contribute a few dollars per week to your retirement fund, that's far better than nothing.
Time is your most valuable resource when it comes to saving for retirement, and the more time you give your money to grow, the easier it will be for compound interest to work its magic. By increasing your savings rate even slightly, you can build a stronger nest egg and enjoy a more comfortable retirement.