Preparing for retirement is harder than ever, and chances are you’ll need a substantial nest egg to comfortably enjoy your senior years. Few workers now have access to pensions, and Social Security is only designed to replace about 40% of your pre-retirement income. Most of your income will therefore probably have to come from your personal savings.
The good news is that increasing your retirement savings is easier than you think. By doing this simple move, you could potentially increase your savings by $60,000 or more.
The power of compound interest
If you’re already saving for retirement, great. But by increasing your savings rate by just 1%, compound interest can take your savings to the next level.
Compound interest is basically when you earn interest on your interest. It’s also essential to grow your savings as quickly as possible.
When you take advantage of compound interest, even small contributions to your retirement fund can add up to tens of thousands of dollars over time. All you have to do is invest the amount you can afford and then give your money as much time as possible to grow.
Boost your savings
The median wage for American workers is around $998 per week, according to the Bureau of Labor Statistics. That’s about $52,000 a year. Most experts also recommend devoting around 10-15% of your salary to your retirement savings.
Let’s say you earn $52,000 a year and save 10% of that for your retirement, or $5,200 a year. If you earned a modest 8% average annual return on your investments, you would accumulate about $589,000 after 30 years.
While it’s certainly a healthy nest egg, you could earn even more. Suppose, for example, that you increase your savings rate to 11% of your salary. That comes out to $5,720 per year, just $520 per year more than what you were saving before.
At this rate, these savings can amount to approximately $648,000 after 30 years, with all other factors remaining the same. That’s a difference of almost $60,000 and it takes very little effort on your part.
Make the most of your money
Increasing your savings rate by 1% may not seem to make much difference. Over time, however, it can add up significantly.
If you can’t afford boost your savings rate anyway, that’s OK. It’s easy to fall into the trap of thinking that if you don’t have much to save, you shouldn’t save at all. But no amount is too small, and if you can only afford to contribute a few dollars a week to your retirement fund, that’s better than nothing.
Time is your most valuable resource when it comes to saving for retirement, and the more time you give your money to grow, the easier it will be for compound interest to take effect. By even slightly increasing your savings rate, you can build a stronger nest egg and enjoy a more comfortable retirement.
The $18,984 Social Security premium that most retirees completely overlook
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 boost your retirement income. For example: an easy trick could earn you up to $18,984 more…every year! Once you learn how to maximize your Social Security benefits, we believe you can retire confidently with the peace of mind we all seek. Just click here to find out how to learn more about these strategies.
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