You Can Retire on $41.67 a Month -- if You Do These 2 Things

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There are different guidelines out there when saving for retirement. But generally speaking, experts say you should aim to save 15% or more of your income annually for your senior years.

Social Security will only replace about 40% of a typical wage in retirement, and that's without benefit cuts, which might happen if lawmakers can't fix the program's financial problems. Most seniors can't afford a 60% pay cut, though. So bringing savings of your own into retirement helps make up that difference.

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But what if you're not in a position to save 15% of your paycheck? Perhaps between daycare expenses, your mortgage, and the high cost of putting food on the table, there just isn't a lot of money to allocate toward retirement.

You may take comfort in knowing that it's possible to build a large retirement nest egg on just $500 a year, or roughly $41.67 a month. But to be able to get away with saving that little, you need to do two things.

1. Start early

If you give yourself a long retirement savings window, you can get away with contributing less money to an individual retirement account (IRA) or 401(k) each month. It's that simple. But if you're already in your 30s or 40s without any savings, then you can pretty much write off the idea of retiring on just $41.67 a month in IRA or 401(k) contributions.

Your best bet is to start funding one of these accounts from the moment you start collecting a full-time paycheck. You can even contribute part-time or summer earnings to an IRA. If you have a seasonal job during college, it pays to fund that account while you're young.

2. Invest your savings in stocks

You can't afford to keep the money in your IRA or 401(k) in cash. You need that money to grow through the years so that small monthly contributions amount to a large sum of cash down the line. To help make that happen, it typically pays to load up on stocks.

Over the past 50 years, the stock market's average annual return has been 10%. That accounts for years when the market did well and years when the market did poorly. If you invest $41.67 a month for retirement over a 45-year period (say, between ages 22 and 67) and are able to snag a 10% average annual return in your retirement account, you could end up with about $354,000.

As of 2022, the median retirement savings balance among Americans aged 65 to 74 was $200,000, according to the Federal Reserve. So if you're able to retire on $354,000, you'll have a lot more money than people in that age group have today.

Of course, there's no need to panic if you're a bit beyond your early 20s and you haven't yet started to save for retirement. If you can snag a 10% return in your retirement account, then saving $67 a month over 40 years will get you to about the same place.

The point, however, is that the sooner you start, the better. And if you don't want to part with loads of money for retirement savings each month, then stocks are the way to go.

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