Save as Much as You’re Able to Right Now
It’s the age-old adage: “Start small, think big.” This couldn’t ring more true for retirement savings. The miracle of compound interest is on your side, and even modest contributions can grow into substantial amounts over time. Let’s break down the math: Imagine you’re earning $60,000 per year and can only manage to save 5% of your income. That’s $3,000 annually, or about $250 each month. Now, if you can earn an 8% average annual return on your investments, those small savings will balloon to $805,000 over 40 years. Yes, you read that correctly—just by saving a small fraction.
The real magic happens when you consider incremental increases. Picture this: Next year, you aim to save an additional 1% of your salary. Each small, incremental increase can significantly impact your savings down the line, turning what seems like meager contributions into a robust nest egg by the time you retire. This isn’t just numbers on paper; it’s the tangible proof that even nominal savings, when started early and grown wisely, can lead to financial freedom.
Saving 10% of your income might not be possible right now, but that doesn’t mean you should put off contributing completely. Even if you’re only able to save 5% or 6% of your income, that could still go a long way.
Say you earn $60,000 per year and you save 5%, or $3,000 annually. That’s a $250 monthly contribution. If you earn an 8% average annual return on that money over 40 years, you’d wind up with over $805,000. And this assumes your income remains constant over that time. If you get raises and you’re able to increase the dollar amount you contribute, you could wind up with even more.
If you’re not satisfied with the amount you’re currently saving for retirement, see if you can increase your contributions by 1% of your salary annually. That’s $50 per month for the person in our previous example. It may not seem like much, but a single $50 contribution earning an 8% average annual return would be worth over $500 after 30 years.
Editor's Note: Analysis and insight for this article were originally sourced from our friends at The Motley Fool
Analyst Ratings and Forecasts for Vanguard (VFIAX):
| Metric | Value |
| Consensus Rating | Overweight |
| Average Price Target | $243.50 |
| Potential Gain | 10.3% |
| Number of Ratings | 12 |
Summary of Analysts’ Outlook:
Analysts are generally bullish on Vanguard, with an Overweight consensus rating. The average price target of $243.50 suggests a potential gain of 10.3% from the current price. This optimism is likely driven by Vanguard’s strong brand, low costs, and diversified investment offerings.
Claim Your 401(k) Match If You’re Eligible
The employer match on your 401(k) is pure gold—it’s essentially free money you simply can’t afford to leave on the table. If your employer offers a match, leveraging this can substantially boost your retirement savings. Here’s how it works: Suppose your employer matches 4% of your $60,000 salary. That’s an extra $2,400 you’re getting each year. With compound interest working its magic, this additional $2,400 yearly contribution can grow to approximately $282,000 over 30 years. That’s nearly $300,000, only from taking advantage of your employer’s benefits.
Those who are eligible for a 401(k) match should make claiming it their top priority unless they can’t afford to. These matches could be enough to push you into super saver status without compromising your lifestyle today. For example, if you qualify for a 4% match and you contribute 6% of your own funds, you’re officially saving 10% of your income for retirement.
Your match might only be a few hundred to a few thousand dollars today, but it could be worth tens of thousands of dollars by the time you retire. Continuing with our example of someone earning $60,000 per year, a 4% match would be worth $2,400 now. If you consistently claimed this match for 30 years and earned an 8% average rate of return, you’d have nearly $282,000 in employer-matched funds alone. Again, this assumes your income doesn’t change at all during that time, which is unlikely.
The actionable takeaway? Check with your employer’s HR department to understand the specifics of your 401(k) match policy. Once you know what’s on the table, adjust your contributions to ensure you’re capturing the full match. It’s an effortless way to increase your savings without feeling the financial pinch.
Analyst Ratings and Forecasts for Fidelity (FIS):
| Metric | Value |
| Consensus Rating | Overweight (Buy) |
| Average Price Target | $144.15 |
| Potential Gain | 14.1% |
| Number of Ratings | 22 |
Summary of Analysts’ Outlook:
The analysts’ outlook for Fidelity National Information Services, Inc. (FIS) is overwhelmingly positive, with a consensus rating of Overweight (Buy). The average price target of $144.15 suggests a potential gain of 14.1% from the current price. The strong outlook is likely driven by FIS’s leadership position in the financial technology industry, its diversified revenue streams, and its history of delivering strong financial performance.
Choose the Right Accounts and Investments
One size doesn’t fit all, especially when it comes to retirement accounts. Your primary choices boil down to 401(k)s and IRAs, each with unique benefits:
- 401(k) Contributions: These accounts are invaluable primarily for capturing employer matches. Moreover, they often have higher contribution limits.
- IRA Flexibility: Traditional and Roth IRAs offer different tax advantages tailored to your current and projected future tax situation. IRAs also provide more flexibility in investment choices compared to most 401(k)s.
Within these accounts, your investment strategy can make or break your savings plan. Diversification is key, and one of the most effective and low-cost ways to achieve this is through S&P 500 index funds. These funds offer exposure to the market’s top-performing companies and charge minimal fees, ensuring that your money works as hard as possible. For example, low-expense-ratio index funds like those from Vanguard or Fidelity mean a higher percentage of your returns goes straight to growing your nest egg.
Where you put your money is just as important as how much you contribute to retirement. The first decision you must make is which account to use. If you qualify for a 401(k) match, your 401(k) is the best place for your savings until you’ve claimed the whole thing.
If you don’t qualify for a match or don’t plan to claim yours, you might consider an IRA instead. These have lower contribution limits—$7,000 in 2024 for adults under 50 compared to $23,000 for 401(k)s ($8,000 and $30,500, respectively, for adults 50+) — but they give you more flexibility to invest how you like. You can also choose whether you’d like to pay taxes on your contributions now to get tax-free retirement withdrawals with a Roth IRA, or if you want a tax break today with a traditional IRA.
Then, you need to decide how to invest your money. The options are pretty much endless, but S&P 500 index funds are a great option for investors of all backgrounds. They diversify your savings among hundreds of companies, and they’re pretty affordable too. Some of the best S&P 500 index funds only charge you about $3 per year for every $1,000 you have invested in the fund.
It will take time, but if you follow the above steps, you could still enjoy a comfortable retirement even if you never manage to set aside 10% of your salary in a year. Aiming for an arbitrary percentage isn’t necessarily the best move anyway. Figure out how much you think you’ll spend in retirement and let this guide you in determining how much you should save for retirement.
Analyst Ratings and Forecasts for Vanguard (VFIAX):
| Metric | Value |
| Consensus Rating | Overweight |
| Average Price Target | $243.50 |
| Potential Gain | 10.3% |
| Number of Ratings | 12 |
Summary of Analysts’ Outlook:
Analysts are generally bullish on Vanguard, with an Overweight consensus rating. The average price target of $243.50 suggests a potential gain of 10.3% from the current price. This optimism is likely driven by Vanguard’s strong brand, low costs, and diversified investment offerings.
The $22,924 Social Security Bonus Most Retirees Overlook
It’s not just about the savings and investment accounts; Social Security can play a significant role in your retirement strategy. Many retirees miss out on potential bonuses, often up to $22,924, simply because they aren’t aware of less common claiming strategies. For instance, delaying your Social Security benefits until age 70 can markedly increase your monthly checks compared to claiming at 62. This can add an extra layer of financial security and comfort during your golden years.
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example, one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
This is where your intelligence and attention to detail come into play. A strategic approach to claiming Social Security benefits could dramatically enhance your retirement income. Dive into the research, consult with Social Security experts, and make an informed decision that maximizes your benefits.
Reassuring Confidence in Your Financial Path
You don’t need to hit the arbitrary 10% savings mark to retire comfortably. By intelligently navigating your savings and utilizing employer benefits and strategic account choices, a robust retirement is within reach for anyone, regardless of current savings levels. Define your personal retirement goals, map out your strategy, and rest assured that with smart decisions and a long-term vision, retiring a millionaire is not just a dream, but a reachable destination.
Analyst Ratings Overview
Adding ratings and overviews at the end of relevant sections provides our readers with actionable insights alongside our strategies:
Analyst Ratings and Forecasts for Vanguard (VFIAX):
| Metric | Value |
| Consensus Rating | Overweight |
| Average Price Target | $243.50 |
| Potential Gain | 10.3% |
| Number of Ratings | 12 |
Summary of Analysts’ Outlook:
Analysts are generally bullish on Vanguard, with an Overweight consensus rating. The average price target of $243.50 suggests a potential gain of 10.3% from the current price. This optimism is likely driven by Vanguard’s strong brand, low costs, and diversified investment offerings.
Analyst Ratings and Forecasts for Fidelity (FIS):
| Metric | Value |
| Consensus Rating | Overweight (Buy) |
| Average Price Target | $144.15 |
| Potential Gain | 14.1% |
| Number of Ratings | 22 |
Summary of Analysts’ Outlook:
The analysts’ outlook for Fidelity National Information Services, Inc. (FIS) is overwhelmingly positive, with a consensus rating of Overweight (Buy). The average price target of $144.15 suggests a potential gain of 14.1% from the current price. The strong outlook is likely driven by FIS’s leadership position in the financial technology industry, its diversified revenue streams, and its history of delivering strong financial performance.