Saving for retirement is tough, especially as many Americans struggle to make ends meet, with costs remaining stubbornly high.
However, it's more important than ever to have a healthy nest egg. Social Security is facing cash flow problems that could affect benefits in the coming years, and few workers collect pensions or other sources of guaranteed income. For many retirees, retirement income will need to come from personal savings.
While there's no silver-bullet solution to make you rich overnight, there are some tried-and-true approaches that could potentially help you save hundreds of thousands of dollars or more with little effort.
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1. Take advantage of a 401(k) company match
A company 401(k) match can instantly double your savings while barely lifting a finger. Not all plans offer a company match, but if you're lucky enough to have access to this perk, it's wise to take full advantage of it, considering you're essentially earning free money.
The most common type of match among 401(k) plans is 50% of a worker's wages, up to 6% of their salary, a 2024 report from Vanguard found. The median earnings among U.S. workers is roughly $60,000 per year, according to 2023 data from the Bureau of Labor Statistics, which would amount to a match of around $1,800 per year.
Let's say, for example, you're currently saving $1,000 per year in your 401(k) and earning a $1,000 annual match. With a modest 8% average annual return on your investment, here's approximately how those savings would add up compared to how much you'd earn by saving $1,800 per year and earning an $1,800 annual match:
| Number of Years | Total Savings: Contributing $1,000 per Year + $1,000 Annual Match | Total Savings: Contributing $1,800 per Year + $1,800 Annual Match |
|---|
| 20 | $92,000 | $165,000 |
| 25 | $147,000 | $263,000 |
| 30 | $227,000 | $408,000 |
| 35 | $345,000 | $620,000 |
Data source: Author's calculations via investor.gov.
In other words, saving an extra $800 per year (or roughly $67 per month) while earning an additional $800 per year from your employer match could boost your total savings by around $275,000 after 35 years. Even after only 25 years, you could accumulate an additional $116,000 in total.
2. Double-check that you're investing aggressively enough
Asset allocation is a key component of retirement planning, and it helps ensure you're investing appropriately for your age.
When you're younger and still have decades until retirement, it's wise to invest more heavily in stocks and less in bonds and other conservative investments to maximize your long-term earnings. Then, as you age, your portfolio should gradually shift toward more conservative investments to better protect against market volatility.
If you're a risk-averse investor in general, it can be tempting to invest conservatively even when you're younger. While that may sound like a safe approach, it could seriously hurt your long-term earning potential.
Historically, the stock market itself has earned an average rate of return of around 10% per year . Meanwhile, bonds often see average returns of roughly 4% to 6% per year.
If you were to invest $200 per month, here's approximately how your total savings would add up, depending on whether you're earning a 5% or 10% average annual return:
| Number of Years | Total Savings: 5% Avg. Annual Return | Total Savings: 10% Avg. Annual Return |
|---|
| 20 | $79,000 | $137,000 |
| 25 | $115,000 | $236,000 |
| 30 | $159,000 | $395,000 |
| 35 | $217,000 | $650,000 |
Data source: Author's calculations via investor.gov.
Of course, your exact returns will depend on where you're investing. But in general, investing more aggressively when you're younger can help supercharge your savings. Your portfolio may be hit harder during market slumps, but it will have plenty of time to recover before retirement.
As far as just how aggressively you should invest, a common rule of thumb is to subtract your age from 110, and the result is the percentage of your portfolio that should be allocated toward stocks. If you're 40 years old, for instance, you may aim to allocate 70% of your portfolio to stocks and 30% to bonds. Keep in mind that this is only a guideline, and your personal allocation will depend on your goals and risk tolerance.
Simple strategies can sometimes make a major difference in your overall retirement savings. By taking full advantage of your 401(k) match and double-checking your asset allocation, you could boost your savings by hundreds of thousands of dollars over time.
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