Every dollar makes a difference -- as you'll see.
Most people don't know how much they need to save for retirement, but many are pretty certain they're not saving enough. Finding extra cash to save toward retirement isn't always easy, and it often seems like you need to set aside hundreds or thousands of dollars to make any real difference. But small contributions made regularly begin to add up over time, especially if you start while you're young.
The difference an extra $50 per month can make
To illustrate this, I looked at the difference an extra $50 a month could make to a person's retirement savings over 20, 30, and 40 years. In all cases, I assumed a 7% annual rate of return on investments.
Image source: Getty Images.
Let's start with the obvious: If you're not contributing any money to retirement, even $50 per month will make a substantial difference. That monthly contribution could add up to nearly $24,600 after 20 years, $56,700 after 30 years, and $119,800 after 40 years. That's still not enough to retire on, but it's a start. It may even cover a few years of retirement expenses when coupled with Social Security and a frugal lifestyle.
If you regularly save for retirement, an extra $50 per month can considerably speed up the growth of your savings. Someone who sets aside $200 per month for retirement will have about $98,400 after 20 years, $226,700 after 30 years, and $479,100 after 40 years. Bumping that contribution to $250 per month will leave you with $123,000 after 20 years, $283,400 after 30 years, and $599,000 after 40 years. Over 40 years, that extra $50 monthly contribution only costs you $24,000, but your final balance is $120,000 higher because of it.
These examples highlight the benefits of boosting your retirement savings by even a small amount, but it's impossible to determine the exact difference it will make. It depends on what you had been saving for retirement previously, how long your savings have to grow before you need to begin drawing upon them, and your rate of return. But it's safe to say that it could add up to tens or even hundreds of thousands of dollars more by the time you're ready to retire.
Where to find an extra $50 a month
So the benefits are clear. The trouble is finding the extra $50 a month. There are several approaches you can take. One option is to reduce your spending to free up the extra cash. Review your budget and see if there are areas where you could cut back, like reducing how often you dine out or purchase expensive beverages, or by canceling unused subscriptions. Take steps to limit discretionary purchases, like clothing and new tech. You may have to make some lifestyle changes, but it could be well worth it if the extra money saved enables you to retire more comfortably.
Another option is to seek ways to increase your income. This could mean working overtime at your current job, switching fields or employers, or taking a job on the side. You could also consider renting out a spare room in your home or any vacation properties you have.
If your employer offers a 401(k) with a match, make sure you're contributing at least enough to get this full match. This will net you even more for retirement without having to set aside extra money of your own. Just make sure you understand the company's vesting schedule if you plan to leave in the near future. That determines when your employer-matched funds are yours to keep; if you leave the company before you're fully vested, you could lose some or all of your 401(k) match.
Boosting your retirement contributions can seem impossible, but a closer look at your budget may reveal it's more doable than you realized. Even if all you can find is an extra $50 a month, it is still worth setting that extra cash aside. You might be surprised at the difference it makes over time.
FAQs
The difference an extra $50 per month can make
Is $400,000 enough to retire at 65? ›
It is 100% possible to retire with $400,000, provided you're not looking to enjoy a particularly expensive retirement lifestyle or hoping to leave the workforce notably early.
How long will $400,000 last in retirement? ›
Using the standard 4% withdrawal rule, this would let us pull $16,000 per year from the retirement account. Combined with Social Security, this would give you almost $32,000 per year in pre-tax income. This isn't much to live on and it would only last you about 25 years before your portfolio runs out.
What does Dave Ramsey say about investing in retirement? ›
Investing Principle 2: Invest 15% of your income in tax-advantaged retirement accounts. Once you've completed the first three Baby Steps, you're ready for Baby Step 4—investing 15% of your household income in retirement. This is where things get really exciting!
Can I retire at 60 with 300k? ›
£300k in a pension isn't a huge amount to retire on at the fairly young age of 60, but it's possible for certain lifestyles depending on how your pension fund performs while you're retired and how much you need to live on.
Can I retire at 62 with $400,000 in my 401k? ›
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
What percentage of retirees have $2 million dollars? ›
According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
Can I retire on $500k plus Social Security? ›
The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
How many years will $300 000 last in retirement? ›
If you have $300,000 and withdraw 4% per year, that number could last you roughly 25 years. Thats $12,000, which is not enough to live on its own unless you have additional income like Social Security and own your own place. Luckily, that $300,000 can go up if you invest it.
How many years is the 4% rule retirement? ›
While it's not guaranteed, multiple studies of the 4% rule show that there is near certainty that if you follow it your retirement savings will last for at least 30 years. Of course, this is based on what the stock market has done in the past and not necessarily on what it will do – no one can predict that.
'$2 Million Is Nothing' Suze Orman Warns Don't Retire If You Don't Have At Least $5 Million Or $10 Million Saved.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
What is the most aggressive mutual fund? ›
Here are the best Aggressive Allocation funds
- Meeder Dynamic Allocation Fund.
- JPMorgan Investor Growth Fund.
- TIAA-CREF Lifestyle Aggressive Gr Fund.
- Franklin Mutual Shares Fund.
- North Square Multi Strategy Fd.
- Gabelli Focused Growth and Inc Fd.
- E-Valuator Agrsv Growth(85%-99%)RMS Fund.
Roughly speaking, a single person will need to be able to spend about £14k a year to achieve the minimum living standard, £31k a year for moderate, and £43k a year for comfortable.
What is the average income for retirees over 65? ›
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
How long will $500,000 last in retirement? ›
As mentioned, $500,000 can last for over 30 years if budgeted correctly. However, there are a number of caveats to this, including how long you need your retirement savings to last you.
What is the average retirement income for a 65 year old? ›
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
How much money should I have when I retire at 65? ›
Some strategies call for having 10 to 12 times your final working year's salary or specific multiples of your annual income that increase as you age. Consider when you want to retire, goals, annual salary, expected annual raises, inflation, investment portfolio performance and potential healthcare expenses.
What is the average retirement balance age 65? ›
Federal Reserve SCF Data
| Age Range | Median Retirement Savings |
|---|
| Ages 45-54 | $100,000 |
| Ages 55-64 | $134,000 |
| Ages 65-74 | $164,000 |
| Ages 75+ | $83,000 |
2 more rowsThe short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
