Saving for retirement isn't easy, especially as costs continue to rise and everyday life becomes more expensive. Social Security benefits also may not be as reliable as they once were, so older adults will need to rely even more on personal savings to make ends meet.
While there's no magic bullet when it comes to saving for retirement, the right strategy could help you save more with less effort. If you're looking to increase your savings by five times (or more), here are three steps to take right now.
1. Don't just save -- invest
There are plenty of places to put your money when preparing for retirement, but investing in the stock market is one of the most effective ways to generate long-term wealth.
Image source: Getty Images.
While the market can be volatile in the short term, over decades, it's incredibly consistent. It also generally earns much higher average returns than, say, a high-yield savings account. Over time, those higher returns could potentially amount to hundreds of thousands of dollars.
For example, say you have $200 per month to contribute toward retirement. In one scenario, you're stashing it in a high-yield savings account earning an interest rate of 2% per year. In another scenario, you're investing in the stock market earning a 9% average annual return -- which is just below the market's historic average. Here's roughly how much you'd have over time in both situations:
| Number of Years | Total Savings: Savings Account Earning 2% Annual Interest | Total Savings: Stock Market Earning 9% Avg. Annual Return |
|---|---|---|
| 20 | $58,000 | $123,000 |
| 25 | $77,000 | $203,000 |
| 30 | $97,000 | $327,000 |
| 35 | $120,000 | $518,000 |
| 40 | $145,000 | $811,000 |
Data source: Author's calculations via investor.gov.
Again, investing can be more volatile in the short term than sticking your cash in a savings account. Over time, though, you could earn far more.
2. Take advantage of the employer match
If you have access to a 401(k), you could be entitled to matching contributions from your employer. With a company match, your employer will contribute a set amount of money to your 401(k) -- generally up to a certain percentage of your salary.
The average employer match is 3.5% of a worker's wages, according to data from the Bureau of Labor Statistics, and the median income in the U.S. as of 2022 is around $55,000 per year. In this scenario, then, the average employer match would come out to around $1,925 per year, or roughly $160 per month.
While that may not sound like much, it can add up over time. If you're earning a 9% average annual return on your investments, that $160 per month would amount to around $262,000 after 30 years. Considering the employer match is essentially free money, you could potentially boost your retirement savings by more than a quarter-million dollars with next to no effort on your part.
3. Keep a long-term outlook
It can take decades to see substantial progress when saving for retirement, and it's easy to get discouraged. One of the best things you can do, though, is keep a long-term outlook and don't quit saving when you don't see immediate results.
Thanks to compound growth, your money will build exponentially faster the longer it has to accumulate. At first, growth may be slow. But once you've been investing for decades, you'll see your savings build faster and faster with each year.
Being patient is key to saving hundreds of thousands of dollars or more for retirement. By continuing to invest consistently (even through the market's rough patches), you'll reap the rewards later down the road.
It's more challenging than ever to prepare for retirement, but the right strategy can make it far easier to build a robust nest egg. By investing in the stock market, taking advantage of perks like the company match, and keeping a long-term outlook, you can head into retirement as prepared as possible.
