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?
If you save $100 monthly for an entire year, you'll have $1,200 in the bank. But if you keep your savings in a savings account, you'll also earn interest. After one year of keeping $1,200 in a high-yield savings account with a 4.5% APY, you'll earn $54 in interest.
It might seem like $100 a month isn't a lot, but it can add up over time. You can also split it into smaller amounts and use it on multiple things, especially if those things don't cost much individually. “We advise diversifying $100 monthly in retirement,” said Adam Garcia, the owner of The Stock Dork.
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.
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.
The good news, though, is that you don't need to be a stock market expert or have thousands of dollars per month to invest. In fact, with just $100 per month, you could potentially build a portfolio worth $325,000 or more.
That means that even if you're not one of those lucky few who have $1 million or more socked away, you can still retire well, so long as you keep your monthly budget under $3,000 a month.
The $1,000-a-month retirement rule says that you should save $240,000 for every $1,000 of monthly income you'll need in retirement. So, if you anticipate a $4,000 monthly budget when you retire, you should save $960,000 ($240,000 * 4).
Retiring on a fixed income can seem daunting, but with some planning and commitment to a frugal lifestyle, it's possible to retire comfortably on $2,000 a month. This takes discipline but ultimately will allow you to have more freedom and happiness in your golden years without money worries.
While $1,500 might not be enough for non-housing retirement expenses for many people, it doesn't mean it's impossible to stick to this or other amounts, such as if you're already retired and don't have the ability to increase your budget.
However, the general rule of thumb, according to Fidelity Investments, is that you should aim to save at least the equivalent of your salary by age 30, three times your salary by age 40, six times by age 50, eight times by 60 and 10 times by 67.
As a very basic example, if you had $5,000 in your 401(k) today, and it grew at an average rate of 5% per year, it would be worth $10,441 in 20 years—more than double. If you withdraw those funds early, however, you're not only facing a stiff tax penalty, you're losing all of that additional growth.
Your Retirement Savings If You Save $100 a Month in 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.
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.
You plan to invest $100 per month for five years and expect a 6% return. In this case, you would contribute $6,000 over your investment timeline. At the end of the term, your portfolio would be worth $6,949. With that, your portfolio would earn around $950 in returns during your five years of contributions.
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.
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