This powerful strategy can supercharge your savings.
Many workers will need hundreds of thousands of dollars or more to retire comfortably, so it’s wise to take full advantage of every strategy you can to build a stronger nest egg. One simple move that can supercharge your savings over time is to set your retirement fund contributions on auto-pilot.
Many 401(k) plans allow you to transfer a portion of your paycheck directly to your retirement account, while IRAs often allow transfers from a bank account on the schedule you choose. Since consistency is key to maximizing your earning potential, even small amounts can go further than you might think.
The power of starting small
When you’re saving a set amount month after month, it can often go further than investing one larger amount and then not continuing to save regularly.
For example, say that you’re investing in a 401(k) while earning a modest 8% average annual rate of return on your investments. In one scenario, you’re investing $50 per month consistently. In another, say that you invest $5,000 upfront but don’t save anything additional after that. Here’s approximately how your savings would add up over time in both cases:
Number of Years | Total Savings: Contributing $50 per Month | Total Savings: Contributing $5,000 Upfront |
---|---|---|
20 | $27,000 | $23,000 |
25 | $44,000 | $34,000 |
30 | $68,000 | $50,000 |
35 | $103,000 | $74,000 |
There’s nothing necessarily wrong with investing a large amount at once, but many people don’t have the cash to make that happen. It’s more feasible for many workers to set aside smaller amounts month after month, and that consistency will pay off big time down the road.
By setting up automatic transfers from your paycheck or bank account to your retirement fund, you can take full advantage of a consistent investing schedule. Over time, those small contributions could add up to serious savings.