The key is being consistent with your contributions and letting time do most of the heavy lifting.
Most rich investors don’t get rich overnight. They do it over a long period of time, making a point of saving for retirement for years on end even when it wasn’t easy to do so. Slow and steady wins the race.
To this end, what could committing $1,000 per month mean over the course of, say, 15 years? More than you might think. Assuming you achieve the stock market’s average annual return of 10% on this money, your $180,000 worth of contributions to a 401(k) plan would be worth roughly $414,000 at the end of the time frame.
Data source: Calculator.net. Chart by author.
There are some important footnotes to add here. Chief among them is that while the growth of this hypothetical retirement account is steady from one year to the next, the market is far more volatile. Some years you may even lose ground!
Also notice that most of this account’s net growth takes shape during the last one-third of the 15-year span, when the net annual returns on reinvested growth finally eclipse the total contributions of new money. Time really is an investor’s best ally!
You should also know that while it’s not included in the mathematical projection above, most employers offering 401(k) plans also make additional contributions of their own money to workers’ retirement accounts. This of course raises the net monthly contribution, sometimes by quite a bit. This is why you may want to prioritize saving in your 401(k) rather than in a self-funded IRA outside of your workplace even if you don’t love all of your investment options within that plan.
Just start somewhere, and sooner rather than later
Certainly, there’s no denying an extra $1,000 per month isn’t exactly an easy amount of money for most people to come up these days. It may take some sacrifice. Some won’t be able to do it.
Even so, starting with a smaller amount is better than not starting at all.
