Building Your Retirement Savings? 1 Easy Trick to Help You Earn Exponential Wealth
If you want to retire comfortably, you'll likely need a hefty nest egg. The average Social Security benefit among retired workers is just $1,925 per month, as of November 2024, which likely isn't enough for most older adults to survive on alone.
While everyone's retirement goals will differ, most people will need at least several hundred thousand dollars stashed away to make ends meet -- especially as retirement becomes more expensive.
If you're looking to supercharge your savings with little effort, there's one trick that could help you build exponential wealth: set your savings on autopilot.
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How automatic contributions can transform your retirement
Most retirement accounts allow you to set up automatic contributions. If you're investing in a 401(k), you may be able to transfer a set amount of money straight from your paycheck to your retirement fund. With an IRA, you can often set up automatic transfers from your bank to your retirement account on the schedule you choose.
Saving consistently is key to maximizing your wealth over time, and if you're putting away even a little each month, that can often go further than saving larger amounts irregularly. By putting your savings on autopilot, you're far more likely to stick to a schedule rather than simply contributing whatever scraps you have left at the end of the month.
Automatic transfers also make it easier to make saving a habit. When you no longer have to make a conscious effort to contribute to your retirement fund, you can build your savings into your budget and plan your lifestyle around them. The stronger this habit becomes, the more likely you are to reach your goals.
Small steps can go a long way
Even if you can't afford to save much right now, small amounts can go further than you might think.
For example, say you're earning a modest 8% average annual return on your investments -- which is just below the stock market's historical average. Let's also say you're contributing $50 per month to your retirement account. Here's roughly how much you could earn over time depending on how many years you have to save:
| Number of Years | Total Savings |
|---|---|
| 20 | $27,000 |
| 25 | $44,000 |
| 30 | $68,000 |
| 35 | $103,000 |
| 40 | $155,000 |
Data source: Author's calculations via investor.gov.
After a few decades, just $50 per month could add up to over $100,000 in total savings. If you were able to bump up your contributions to, say, $200 per month, that could amount to close to $300,000 after 30 years, all other factors remaining the same.
On the other hand, say that you were to invest $5,000 right now and not contribute anything else. Even if you gave your money 30 years to grow, you'd only end up with around $50,000 in total, assuming you're still earning an 8% average annual return.
Saving consistently can protect against volatility
One other perk of saving consistently is that you can take advantage of a strategy called dollar-cost averaging. With this approach, you're saving a set amount at regular intervals throughout the year rather than investing sporadically.
Dollar-cost averaging can help balance the natural ups and downs of the stock market. Sometimes, you'll invest when the market is at peak prices. Other times, though, you'll be investing at steep discounts when the market is in a slump.
Over time, these highs and lows should balance each other out. If you were to invest a significant amount just once or twice a year, you risk only buying when stock prices are at their highest -- costing you far more.
No amount is too small to contribute to your retirement fund, and setting your savings on autopilot can help build healthy financial habits that last a lifetime. The sooner you get started investing for the future, the better your chances of enjoying a comfortable retirement.
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