Key Points
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Small contributions can make a big difference if the money is invested over years.
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Put your money into your 401(k) first if you qualify for an employer match.
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Increase your retirement contributions right away after you get a raise.
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Saving enough for retirement is an undeniably big challenge. Expenses can run into the seven figures, and many people struggle to save regularly. Sometimes, there isn’t any wiggle room in your budget because you need all your income to cover your living expenses.
But if you have even a bit of extra cash, investing it for the future could make a much bigger difference than you’d expect, particularly if you’re a ways off from retirement.
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Small retirement contributions can make a significant difference
Obviously, larger retirement contributions are more desirable if you can afford to make them. The more you’re able to set aside, the more you’ll likely get in investment earnings, and the more you’ll have to draw upon in retirement.
But small contributions can still make a meaningful difference to your retirement savings. Imagine you can only afford to spare $20 per pay period, or about $40 per month. You’d wind up with more than $82,500 if you did this for 30 years and earned a 10% average annual return. That probably won’t be enough to retire on by itself, but it could cover a few years of living expenses, especially when paired with Social Security.
That money could go even further if you’re putting it into a 401(k) and you qualify for an employer match. Your employer might give you $0.50 or $1 for every dollar you contribute of your own money, up to a certain percentage of your salary. If you get a dollar-for-dollar match, you’re effectively doubling the amount of savings you wind up with without making any more sacrifices in the present.
Start small and increase your retirement contributions over time
It’s fine to start out by saving just a few dollars each pay period. It builds a habit and might help you claim some of your 401(k) match. As your income grows, you can increase the amount you set aside each month. Remember to do this right away after you get a raise. This helps prevent lifestyle creep from eating up all your extra money.
Consider saving windfalls, such as a year-end bonus or a tax refund, as well. If you don’t want to save the entire thing, you could just set aside a portion of it. This could potentially give you hundreds or thousands of dollars more per year.
You could also look into a side hustle to bring in extra income if you have some spare time. Put this money toward retirement savings. If you stash it in a tax-deferred account, like a traditional IRA, you won’t have to worry about it raising your tax bill at all.
Just do the best you can. As you get closer to retirement, you can assess your progress and decide whether you need to push back your retirement date.
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