Saving for retirement isn't easy, and if you're falling behind, you're not alone. The average worker expects to need around $1.7 million to retire comfortably, a 2022 survey from Charles Schwab found. Yet the median 401(k) balance is only around $55,000, according to Vanguard's "2022 How America Saves" report.
When it comes to investing for the future, though, a little can go a long way. You don't need to be rich to retire wealthy, and the right strategy can boost your savings by hundreds of thousands of dollars or more.
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Time is your most valuable resource
To build a robust retirement fund, it's not enough to simply save -- you'll need to invest.
Investing in the stock market doesn't have to be complicated. In fact, it's as simple as contributing regularly to your 401(k) or IRA. While the market can be intimidating, it's one of the most effective ways to generate wealth over time.
Investing even a small amount each month can go further than you might think. For example, say you're investing $100 per month while earning a modest 8% average annual return (which is just below the S&P 500's historic average). Here's roughly how much you would accumulate over time:
| Number of Years | Total Savings |
|---|---|
| 10 | $17,000 |
| 15 | $33,000 |
| 20 | $55,000 |
| 25 | $88,000 |
| 30 | $136,000 |
| 35 | $207,000 |
| 40 | $311,000 |
Source: Author's calculations via Investor.gov.
It takes a decade or two for your savings to build momentum, but the longer you give your money to grow, the faster your investments will compound.
To earn as much as possible in the stock market, then, you don't necessarily need to invest thousands of dollars per month. If you get started saving earlier in life, you can build a strong nest egg with less effort on your end.
What if you're falling behind?
Of course, not everyone has 40 years to let their savings grow. But if you're off to a late start, beginning now is still better than putting it off. Waiting even a few years can make it exponentially more difficult to save a lot of money.
For instance, say you're currently 40 years old and investing $200 per month while earning an 8% average annual return. In another scenario, say you put off saving for five years, but then you begin investing $300 per month. All other factors remain the same.
In the first scenario, you'd accumulate around $175,000 by age 65. In the second scenario, you'd only have around $165,000 by that age -- even though you were investing more per month.
Regardless of where you are in your retirement saving journey or how much you can afford to invest, time is your most precious asset. Saving even a little now can add up over time, and the longer you wait, the more you'll need to invest each month to catch up.
How to save even more
Right now is a difficult time for many people. Inflation is still high, a recession could be on the horizon, and many workers are finding it tough to save. That's OK.
One way to effortlessly boost your savings is to take advantage of matching 401(k) contributions. Not all employers offer this perk, but these contributions are essentially free money and can double your savings with zero effort on your part.
Also, double-check your asset allocation to ensure you're investing appropriately for your age. Asset allocation refers to how your investments are divided between stocks and bonds. Stocks tend to be riskier but experience much higher average returns than bonds.
Your exact allocation will depend on your risk tolerance. A general rule of thumb is to subtract your age from 110, and the result is the percentage of your portfolio that should be allocated to stocks. So for instance, if you're 40 years old, you may aim to allocate around 70% of your portfolio to stocks and 30% to bonds.
When you're younger and still have decades until retirement, investing more heavily in stocks can increase your average returns and dramatically boost your savings over time.
Saving for retirement can feel like an uphill battle, but getting started sooner rather than later will help. By investing whatever you can afford right now, you can head into retirement far more prepared.
