Retirement super savers -- those who save at least 10% of their income annually for retirement -- rightly get plenty of praise. It's not an easy feat to pull off in one year, let alone repeatedly. But this isn't the only path to a comfortable retirement.
You may feel anxious about your ability to save for retirement if you're saving less than 10% of your income. But you might be just fine. If you do the following three things, you could stay on track for your ideal retirement.
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1. Save as much as you're able to right now
Saving 10% of your income might not be possible right now, but that doesn't mean you should put off contributing completely. Even if you're only able to save 5% or 6% of your income, that could still go a long way.
Say you earn $60,000 per year and you save 5%, or $3,000 annually. That's a $250 monthly contribution. If you earn an 8% average annual return on that money over 40 years, you'd wind up with over $805,000. And this assumes your income remains constant over that time. If you get raises and you're able to increase the dollar amount you contribute, you could wind up with even more.
If you're not satisfied with the amount you're currently saving for retirement, see if you can increase your contributions by 1% of your salary annually. That's $50 per month for the person in our previous example. It may not seem like much, but a single $50 contribution earning an 8% average annual return would be worth over $500 after 30 years.
2. Claim your 401(k) match if you're eligible for one
Those who are eligible for a 401(k) match should make claiming it their top priority unless they can't afford to. These matches could be enough to push you into super saver status without compromising your lifestyle today. For example, if you qualify for a 4% match and you contribute 6% of your own funds, you're officially saving 10% of your income for retirement.
Your match might only be a few hundred to a few thousand dollars today, but it could be worth tens of thousands of dollars by the time you retire. Continuing with our example of someone earning $60,000 per year, a 4% match would be worth $2,400 now. If you consistently claimed this match for 30 years and earned an 8% average rate of return, you'd have nearly $282,000 in employer-matched funds alone. Again, this assumes your income doesn't change at all during that time, which is unlikely.
Check with your employer if you're unsure how much you have to contribute to claim your 401(k) match. Usually, the company will give you $1 or $0.50 for every dollar you set aside, up to a certain percentage of your income. Keep in mind that a company's matching formula can change over time. If yours does, you may have to adjust how much you're personally setting aside for retirement.
3. Choose the right accounts and investments
Where you put your money is just as important as how much you contribute to retirement. The first decision you must make is which account to use. If you qualify for a 401(k) match, your 401(k) is the best place for your savings until you've claimed the whole thing.
If you don't qualify for a match or don't plan to claim yours, you might consider an IRA instead. These have lower contribution limits -- $7,000 in 2024 for adults under 50 compared to $23,000 for 401(k)s ($8,000 and $30,500, respectively, for adults 50+) -- but they give you more flexibility to invest how you like. You can also choose whether you'd like to pay taxes on your contributions now to get tax-free retirement withdrawals with a Roth IRA, or if you want a tax break today with a traditional IRA.
Then, you need to decide how to invest your money. The options are pretty much endless, but S&P 500 index funds are a great option for investors of all backgrounds. They diversify your savings among hundreds of companies, and they're pretty affordable too. Some of the best S&P 500 index funds only charge you about $3 per year for every $1,000 you have invested in the fund.
It will take time, but if you follow the above steps, you could still enjoy a comfortable retirement even if you never manage to set aside 10% of your salary in a year. Aiming for an arbitrary percentage isn't necessarily the best move anyway. Figure out how much you think you'll spend in retirement and let this guide you in determining how much you should save for retirement .
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