Will Saving $20 a Week in Your IRA Really Make a Difference?

If your goal is to have enough money to retire comfortably, then it's important to fund an IRA account from a young age. It's also important to invest your IRA in a savvy manner. For the most part, that means loading up on stocks, ETFs, and other assets that are likely to contribute to solid growth. 

It's always a good thing to max out your IRA contributions every year if you can. This year, IRA contribution limits are $6,500 for savers under 50 and $7,500 for those 50 and over. 

But what if you can't manage to part with that much money? It could be that between your mortgage, car payments, and grocery and utility bills, there just isn't enough left.

If the idea of having to give up a lot of money for your IRA seems daunting, you may decide to just make small weekly contributions instead. And even if you're only able to contribute $20 a week, it could go a really long way over time.

Small IRA contributions can make a big difference

Contributing $20 a week to your IRA means putting in $1,040 over the course of a year. Clearly, that doesn't come close to maxing out your IRA, no matter how old you are. But that also doesn't mean that those $20 contributions won't add up over time, especially if you invest that money in stocks and contribute to your savings consistently. 

The stock market's average annual return over the past 50 years, as measured by the performance of the S&P 500 index, is 10%. If you're investing over a window that's decades long, you might manage to generate a similar return in your IRA.

But let's be conservative and say you aren't. Instead, let's say you're able to generate a 7% return. Even so, if you were to invest $20 a week in your IRA over a 40-year period at 7%, you'd end up with a balance of around $206,000. That's not exactly a negligible amount of money.

Now, let's be more optimistic and apply a 10% return to your portfolio instead. All other things being equal, with that return, you'd be looking at an ending balance of about $457,000.  

That's why you shouldn't necessarily get down on yourself if you're only able to part with $20 a week for retirement savings. And you also shouldn't assume that small contributions won't add up. 

Do your best but aim higher

The more money you're able to sock away in your IRA, the more retirement savings you stand to amass. Plus, traditional IRA contributions shield some of your income from taxes, so that's yet another reason to try to max out or get as close as possible.

But if you're not able to part with $6,500 or $7,500 a year for your IRA, don't beat yourself up, and instead, recognize that smaller contributions can have a big impact. At the same, try to ramp up your savings rate over time. 

One strategic way to do so is to bank your raise every year, since it's money you're not used to spending. Another option is to get a side hustle and use that extra income to fund your IRA.

Saving $20 a week in an IRA could leave you pretty well off for retirement. But that doesn't mean you shouldn't try to save more if possible.