Saving for retirement is never easy, but it's especially challenging as costs continue to rise and many Americans are on a tight budget.
While there's no magic solution to saving more, there are some tricks to make it more manageable. Regardless of your timeline or financial situation, consistency is key to maximizing your savings over time.
In fact, even if you can't afford to save much, getting started anyway could actually help you save more over time. Thanks to compound earnings, time is one of the most important factors when building a robust retirement fund. Here's exactly why it's so crucial to take advantage of it.
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Time is your most valuable resource
With compound earnings, you're earning returns on your entire account balance rather than just the amount you invest. As your savings grow, you'll earn more, which will increase your balance further -- and the cycle continues.
The more time you have to invest, then, the easier it will be to supercharge your savings. If you put it off even by a few years, you'll need to save exponentially more each month to reach your goal.
For example, say you have a goal of saving $500,000 by age 65, and your investments are earning a modest 8% average annual rate of return. Here's approximately what you would need to invest each month depending on the age you begin saving:
| Age You Begin Saving | Amount Invested per Month | Total Savings by Age 65 |
|---|---|---|
| 25 | $165 | $513,000 |
| 30 | $250 | $517,000 |
| 35 | $375 | $510,000 |
| 40 | $575 | $504,000 |
| 45 | $925 | $508,000 |
| 50 | $1,550 | $505,000 |
| 55 | $2,900 | $504,000 |
Data source: Author's calculations via Investor.gov.
If you're off to a late start, you can begin saving now (or increase your savings) rather than putting it off.
What if you can't afford to save right now?
Money is tight for many people right now, so if you're having trouble finding spare cash to put toward retirement, you're not alone.
There are some situations in which it might actually be wise to avoid investing right now. If you're already stretching every dollar and don't have an emergency fund, for example, you might want to focus on that goal first. Or if you're saddled with loads of high-interest debt, paying that down before you begin investing could be a smart financial choice.
But if you have even a few dollars per week to put toward retirement, that can go a long way over time. You can always increase your savings down the road once you have more cash to spare, but you will never get this time back.
Two tricks to make saving a little easier
Saving is tough, but there are a couple of strategies that could help you earn more and make it easier to build investing into your routine:
- Take advantage of matching contributions: If you have a 401(k) through your job, see if your employer offers matching contributions. With this perk, your employer will match your savings, usually up to a certain percentage of your annual salary. This is essentially free money and an effortless way to instantly double your savings.
- Set your savings on autopilot: With 401(k) plans, you often have an option to transfer a set amount of money straight from your paycheck to your retirement account. If you're investing in an IRA, you can often set up automatic transfers from your bank to your retirement fund on the schedule you choose. By setting your savings on autopilot, it will be easier to save your spare cash before you have the chance to spend it.
Preparing for retirement is hard work, and it requires time and consistency to see results. But regardless of how much you can afford to save, getting started now will make it far easier to reach your long-term goals.
