With retirement becoming more expensive, workers need to save more than ever to make ends meet.
The average employee expects to need about $1.7 million to retire comfortably, according to a 2022 survey from Charles Schwab. But according to a separate report from Vanguard, the average 401(k) balance among workers is roughly $142,000.
Fortunately, it’s simpler than you think to boost your savings while barely lifting a finger. Here’s how.
Maximizing your savings
One of the easiest and most effective ways to build a strong retirement fund is to leverage compound earnings.
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With compound earnings, you will earn returns not only on the initial amount of your investment, but on the entire balance of your account. The more you invest, the more your retirement fund will grow, and the more you will earn.
Although it may seem confusing, the bottom line is to save as much as possible, it is important to invest consistently over the years.
compound earnings in action
Consistency is the key to growing your savings, and compound earnings can make it easier to save ten times more with little or no effort.
Say, for example, you invest $1,000, and you earn an average annual return of 8% on your investment. By simply leaving your money alone, you’ll have accumulated about $10,000 after 30 years — assuming you don’t make any additional contributions.
To maximize your savings, you can continue to invest a little each month. Say, for example, in addition to your initial $1,000 investment, you also invest $200 per month. This is roughly how much you could earn over time, assuming you’re still earning an 8% average annual return.
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Taking advantage of compound earnings requires next to no effort from you, because all you have to do is invest consistently and then leave your money alone for as many years as possible. From there, your investment does all the heavy lifting for you.
Save more for retirement
The more you can contribute to your retirement fund every month, the more you will collect over time. But that’s not always easy, especially in this economic climate.
The beauty of compound income, is that you don’t have to invest a lot to see significant results over time. Even if you only invest $20 per month, you will accumulate more than $27,000 over 30 years, assuming an 8% average annual return.
If money is tight and you can’t afford to invest now, that’s okay. But if you have even a few dollars to spare, no amount is too small to start. Time is your most valuable resource when it comes to saving for retirement, so it’s better to save a little now than to delay.
Saving for retirement is challenging, but compound earnings can make it a little easier. By investing what you can afford every month and giving your money as much as possible to grow, you will be well on your way to building a healthy retirement nest egg.
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