If you're already contributing money to an IRA or 401(k) plan, you're doing your part to secure your retirement. But are you saving enough? If you're years away from leaving the workforce, it's hard to know. After all, how are you supposed to anticipate what your living expenses will look like two, three, or four decades from now?
Still, as a general rule, your goal should be to set aside enough money so you wind up retiring with 10 times your ending salary. And to do that, you may need to boost your savings rate beyond what it is today.
IRAs currently max out at $6,000 a year for workers under 50, while 401(k)s top out at $19,500. These limits will also remain in effect in 2021. Hitting the maximum contribution for either account could prove challenging unless you're a super-high earner with incredible self-control.
What if you were to push yourself to save just an extra $100 a month on top of what you're already saving? You may be surprised at what a difference it can make.
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What can an extra $100 a month do for you over time?
If you were to sock away an extra $100 a month over the next 40 years, you'd have an additional $48,000 at your disposal for retirement, assuming those funds generate no return at all. That's a nice chunk of money, but it's not earth-shattering.
But here's the thing – when you save that extra $100 a month, you also get an opportunity to invest it. That makes all the difference. Let's get back to our example. You pledge to sock away that additional $100 a month for 40 years. During that time, you invest your savings heavily in stocks. Your retirement plan generates an average annual 7% return, which is a few percentage points below the stock market's average.
All told, you'll end up about $240,000 wealthier when you factor in compounded investment growth. Now that's a big difference.
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If you can't max out your retirement plan, you should, at the very least, see if you can push yourself to fork over an additional $100 on a monthly basis beyond what you're saving today. You may have to make some sacrifices to get there, whether it's dining out less frequently or taking a more modest vacation every year. If you really can't bear to give up any of the things you love, pick up a side job and use the proceeds to boost your savings rate. It doesn't matter how you eke out that extra $100 a month. If you're willing to make the effort, you'll be well-rewarded with a more robust nest egg later in life.
Remember, retirement may end up being more expensive than you'd think, especially given the way senior healthcare costs keep rising. If you want to enjoy your golden years without financial concerns holding you back, boost your savings rate today. It'll really go a long way.
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FAQs
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.
How much money will you have if you save $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.
What happens if you save $100 dollars a month for 40 years? ›
According to Ramsey's tweet, investing $100 per month for 40 years gives you an account value of $1,176,000. Ramsey's assumptions include a 12% annual rate of return, which some critics have labeled as optimistic given that the long-term average annual return of the S&P 500 index is closer to 10%.
How much is $100 a month invested from 25 to 65? ›
$100 a month invested from age 25 to 65 is $1,176,000. You do NOT have to retire broke.
Is $100 a month worth investing? ›
On average, the stock market yields between an 8% to 12% annual return. 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.
Can I retire at 70 with 300k? ›
The short answer to this question is "Yes." If you've managed to save $300k successfully, there's a good chance you'll be able to retire comfortably, though you will have to make some compromises and consider your plans carefully if you want to make that your final figure.
How much will I have if I invest $100 a month for 20 years? ›
For simplicity's sake, assume that compounding takes place once a year. After 20 years, you will have paid 20 x 12 x $100 = $24,000 into the fund. However, the compounding return will more than double your investment.
Am I saving too much for retirement? ›
To help people determine how much to save for retirement, investment experts provide various rules of thumb to give you some benchmarks. For example, you may be advised to contribute 10% to 15% of your gross income every year, or aim to have 25 times your projected annual spending when you retire.
What is a good monthly retirement income? ›
Estimate Your Income
The average retirement savings for a person about to retire are approximately, $225,000, equal to $450,000 combined for a couple that has saved equally. Following the conservative rule of thumb and withdrawing 4% a year will provide this couple with another $1,500 monthly or $18,000 a year.
How much is $100 a month for 5 years? ›
How $100 a month can help make you wealthy
| If you invest $100 a month for this many years... | ...this is how much you'll end up with. |
|---|
| 5 | $8,058.73 |
| 10 | $21,037.40 |
| 15 | $41,939.68 |
| 20 | $75,603.00 |
2 more rowsOct 1, 2023
By contributing $200 each month, your fund will add up throughout the year -- $2,400 is a solid amount of cash. Since most checking accounts don't earn interest, keeping your extra funds in a savings account is smart.
What if I invest $200 a month for 20 years? ›
Investing as little as $200 a month can, if you do it consistently and invest wisely, turn into more than $150,000 in as soon as 20 years. If you keep contributing the same amount for another 20 years while generating the same average annual return on your investments, you could have more than $1.2 million.
How much will I get if I save $100 a month for 18 years? ›
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.
What will $5,000 be worth in 20 years? ›
The table below shows the present value (PV) of $5,000 in 20 years for interest rates from 2% to 30%. As you will see, the future value of $5,000 over 20 years can range from $7,429.74 to $950,248.19.
What if I invested $100 a month in S&P 500? ›
If you're still investing $100 per month, you'd have a total of around $518,000 after 35 years, compared to $325,000 in that time period with a 10% return. There are never any guarantees in the stock market, but with the right strategy, a little cash can go a long way.
What is a good amount to save monthly for retirement? ›
You should consider saving 10 - 15% of your income for retirement. Sound daunting? Don't worry: your employer match, if you have one, counts.
Is saving $1,000 a month for retirement enough? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
What is a realistic amount of money for retirement? ›
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.
