There’s a good chance that you’re saving for retirement, but you’re not where you want to be. The good news is that most people still have time to do something about the situation. You can multiply your retirement savings fivefold in 17 years, which means a dramatic increase from where you are, whether you’re 30, 40, or even 50.
According to research by The Motley Fool, the typical retirement nest egg was only $65,000 in 2019, and a troubling 40% of Americans now believe they won’t get to retire due to pandemic-related setbacks.
So, read on if you or someone you know needs to level up their savings game. Here is how you can increase your retirement funds fivefold over the coming years.
How to grow without risking too much
Your nest egg will have to pay for your wants and needs after you are done working, so you mustn’t do something to put your future at risk. For example, taking your retirement account and trading stock options with it would be horrendous.
On the flip side, you also don’t want to stick your entire nest egg in a savings account for a minimal amount of interest while inflation eats away at your money, and you miss out on years of potential growth.
Instead, consider putting your money into index funds that track the S&P 500. That’s the standard benchmark for the U.S. stock market, and although it has sometimes proved volatile, it has grown higher throughout history. In other words, it’s not risk-free day to day, but there’s a good chance it will make you money over time. The S&P 500 has averaged approximately 9.4% annual returns over the past 50 years.
What does the math look like?
Suppose you’re 40 years old and in your working prime, and you have managed to save $100,000 toward your retirement so far. For simplicity, let’s assume you moved all your savings to an index fund that tracks the S&P 500.
Next, you budget $370 a month from your paycheck to your retirement account. That might sound like a lot, but consider that the average monthly car payment in the U.S. today is $716 for new cars, roughly double. So you might have to carve out some room in your budget for your retirement savings, but isn’t it worth it to enjoy your later years?
Starting at $100,000 and investing another $370 monthly would grow your nest egg to just over $500,000 after 17 years. The math is the same if you’re starting at 30 or younger, but the additional 10 years mean that your nest egg is $1.5 million by age 57 by starting younger.
Even if you’re starting later, say at 50, you can still multiply your nest egg by the time you’re at full retirement age for Social Security.
Here’s the bottom line
The takeaway is that it’s never too late to build your retirement nest egg. Whether you’re just starting out in the workforce, in the prime of your career, or approaching retirement, there’s a path forward. Don’t underestimate the power of consistent deposits into arguably America’s greatest wealth-building machine, the S&P 500.
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