Retirement planning is tough, especially as many Americans are stretched thin financially right now. But it's more important than ever to have a robust nest egg, and the average U.S. adult expects to need around $1.8 million to retire comfortably, according to a 2023 survey from Charles Schwab.
Saving for the future is often easier said than done, but the more time you have, the less effort it will take. Regardless of how long you have until retirement, saving more now can make it easier to build a stronger retirement fund. Here's how.
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How compound growth affects your savings
With compound growth, you're earning returns on your entire account balance -- not just the amount you contribute. This will help your savings grow exponentially over time, as the more your balance grows, the more you'll earn.
Most retirement accounts -- such as 401(k)s, traditional IRAs, and Roth IRAs -- earn compound earnings. The sooner you get started saving, then, the easier it will be to build a healthy nest egg. Even if you can't afford to contribute much now, it could still amount to more than you might think.
For example, say you have the option to either save $200 per month now or wait 10 years and start saving $400 per month then. If you're earning a modest 8% average annual return on your investments, here's approximately how those savings would add up in both situations:
| Number of Years | Total Savings: Contributing $200 per Month Now | Total Savings: Contributing $400 per Month in 10 Years |
|---|---|---|
| 10 | $35,000 | $0 |
| 15 | $65,000 | $28,000 |
| 20 | $110,000 | $70,000 |
| 25 | $175,000 | $130,000 |
| 30 | $272,000 | $220,000 |
Data source: Author's calculations via investor.gov.
In other words, even if you double your savings rate, you'd still end up with less than if you'd started contributing earlier.
Time is your most valuable resource when saving for retirement, and it doesn't necessarily matter how much you can afford to contribute right now. The longer you wait to save, the harder it will be to catch up later.
What if you can't afford to save right now?
Not everyone can afford to contribute hundreds of dollars per month to their retirement fund, and that's OK. Small steps can make a big difference over time, and no amount is too small. Even if you can only save a few dollars per week, it's still often better to start now than to put it off.
If you have access to a 401(k) that offers matching contributions, that could help your money grow even faster. The employer match is essentially free money that can instantly double your savings with next to no effort.
The average 401(k) match is 3.5% of a worker's wages, according to the U.S. Bureau of Labor Statistics. If you're earning, say, $60,000 per year, that amounts to $2,100 per year in matching contributions. At an 8% average annual return, that would add up to more than $96,000 over 20 years -- and that's not even including your own retirement fund contributions.
Saving for the future isn't easy, especially if money is tight. But time is your most valuable asset, and saving now while you still have as much time as possible before retirement can make it more doable. With small, consistent steps, you can set yourself up for a more financially secure retirement.
