Many Americans aren’t saving enough for retirement. The reasons for this vary, but the obvious one is that it’s challenging to find extra money in your paycheck for retirement if you’re battling the rising costs of living and unprecedented levels of household debt.
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Although it might seem like there’s no room in your budget to save for retirement, even a little bit goes a long way. To help you see the power of putting aside a small sum for retirement each month, GOBankingRates determined how much you’d have if you put $100 in an investment account each month, with an annual rate of return of 6.5%.
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Your Retirement Savings If You Save $100 a Month in a 401(k)
Saving $100 a month in a very conservative vehicle, like a basic savings account, results in much lower retirement savings than investing in the stock market via a 401(k). If you’re age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.
Around 86% of employers with 401(k) plans offer some kind of employee match, according to the Society for Human Resource Management. But even if your employer doesn’t offer a match, the retirement savings you earn from investing in stocks through a 401(k) is considerably higher. Using a slightly conservative rate of return of 6.5% — the historical average for the S&P 500 is higher, more like 7%-10% — results in far more savings down the road.
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If you started putting your money into a 401(k) today at age 25 and saved for 40 years, you’d have $218,107 saved by age 65, and that’s with no employer contribution. If you received a 3% match from your employer, your 401(k) savings would jump to $436,215.
Take a look below at how much you’d have saved by 65, based on which age you started saving.
Age at Start of Investing
Birth Year
401(k) Retirement Savings
Savings With 3% 401(k) Matching
25
1998
$218,107
$436,215
30
1993
$154,032
$308,063
35
1988
$107,264
$214,528
40
1983
$73,129
$146,259
45
1978
$48,215
$96,430
50
1973
$30,030
$60,061
55
1968
$16,758
$33,516
60
1963
$7,071
$14,141
Less frequent than no match is employers who offer a partial match — for example, 50 cents on the dollar up to 6% of employee salary. The median match is 3% of employee salary, according to a Vanguard study. Based on the same parameters above, you’d save approximately $327,161 by age 65 if you put away $100 a month with a 3% partial employer match of your salary.
How To Save for Retirement
The simplest way to increase your retirement savings is to increase your monthly contribution. For the purposes of this study, $100 contributed a month was used, for an annual contribution of $1,200.
You could certainly crank that up if you wish by contributing more — depending on what your budget permits — contributing every paycheck and getting your employer’s maximum contribution match.
Another strategy is to open and maintain several vehicles for retirement savings. For instance, you can have a 401(k) through your employer while at the same time contributing to an IRA outside of work. Plus, IRAs tend to offer a wider variety of investment options than the average 401(k) plan.
The good news is, retirement costs can be modified and reduced based on geography. The basic fact is that some states and cities have cheaper costs of living than others, better taxes on retirees, more affordable homes or many other factors. Some states even tax Social Security, so where you choose to retire certainly affects how quickly you use up your savings.
James Holbach contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: How Much Would You Have for Retirement If You Saved $100 a Month?
This chart shows that a monthly contribution of $100 will compound more if you start saving earlier, giving the money more time to grow. If you save $100 a month for 18 years, your ending balance could be $35,400. If you save $100 a month for 9 years, your ending balance could be about $13,900.
How long will $700k last in retirement? $700k can last you for at least 25 years in retirement if your annual spending remains around $40,000, following the 4% rule. However, it will depend on how old you are when you retire and how much you plan to spend each month as a retiree.
With the $1,000 per month rule, if you plan to withdraw 5% of your savings each year, you'll need at least $240,000 in savings. If you aim to take out $2,000 every month at a withdrawal rate of 5%, you'll need to set aside $480,000.
Rather than hitting it big with speculative investments, the real key is consistent investment from as early an age as possible. If you do that, investing just $100 per month may be enough to get you to a seven-digit retirement account.
Investing $100 per month, with an average return rate of 10%, will yield $200,000 after 30 years. Due to compound interest, your investment will yield $535,000 after 40 years. These numbers can grow exponentially with an extra $100. If you make a monthly investment of $200, your 30-year yield will be close to $400,000.
In that case, investing $100 a month over 40 years will leave you with an ending balance of around $531,000. Meanwhile, you'll only be contributing a total of $48,000 to get to that point. So all told, you're looking at a $483,000 gain, which is pretty impressive.
The table below shows the present value (PV) of $3,000 in 20 years for interest rates from 2% to 30%. As you will see, the future value of $3,000 over 20 years can range from $4,457.84 to $570,148.91.
If you don't yet have an emergency fund, it's never too late to start building one. By contributing $200 each month, your fund will add up throughout the year -- $2,400 is a solid amount of cash. Since most checking accounts don't earn interest, keeping your extra funds in a savings account is smart.
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
Key takeaways: Most people in the U.S. retire with less than $1 million. $500,000 is a healthy nest egg to supplement Social Security and other income sources. Assuming a 4% withdrawal rate, $500,000 could provide $20,000/year of inflation-adjusted income.
Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.
How long will $500k last in retirement? $500k can last you for at least 25 years in retirement if your annual spending remains around $20,000, following the 4% rule. However, it will depend on how old you are when you retire and how much you plan to spend each month as a retiree.
If you're age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.
Since higher earners will get a smaller portion of their income in retirement from Social Security, they generally need more assets in relation to their income. We estimated that most people looking to retire around age 65 should aim for assets totaling between 7½ and 13½ times their preretirement gross income.
By age 25, you should have saved about $20,000. Looking at data from the Bureau of Labor Statistics (BLS) for the fourth quarter of 2023, the median salaries for full-time workers were as follows: $712 per week, or $37,024 each year for workers ages 20 to 24.
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