How to Build a Comfortable Retirement Starting With Just $300 a Month

Saving for retirement can feel like an all-or-nothing situation. Either you need to set aside hundreds of dollars every month or it’s not worth trying to save at all.

However, don’t let perfect be the enemy of good. Putting away any amount of money regularly can reap huge benefits in retirement.

Here’s How To Calculate Much You Need To Save For Retirement

“While there’s no one-size-fits-all number, a common rule of thumb is that you’ll need about 80% of your current annual income to maintain your lifestyle in retirement,” said Priya Malani, founder and CEO of Stash Wealth.

She advises clients to multiply 80% of their current salary by how many years they expect to live in retirement. This formula can be used whether you expect to retire early or not.

For example, if you currently make $65,000 a year and expect a similar standard of living in retirement. This would be your retirement savings target, assuming you retire at age 65:

($65,000 × 0.80) × 30 = $1.56 million

This formula doesn’t give you the whole picture of what you’ll need to save for retirement though. You may end up with multiple income sources, a spouse’s or partner’s retirement savings, family inheritance, or much lower expenses if you choose to downsize.

This Is How Big Your Retirement Nest Egg Will Be If You Save $300 a Month

Reaching $1 million or more in savings might seem overwhelming, but there are a few factors working in your favor that can help you reach that number more easily than you think.

By investing early, you leverage the power of compound interest, earning interest on top of your interest. The key is to start early and be consistent.

The best way to benefit from compound interest is by investing in a low-cost index fund that replicates the performance of the entire stock market. The long-term annual return of the S&P 500 over the last century is around 10%, but when you adjust for inflation and market variations, that number is actually closer to 6.69%.

Taking that number, we can look at two scenarios:

• If you start investing $300 monthly at age 25 and retire at age 65 (with 40 years to save): You’ll end up with more than $660,000 worth of savings, assuming a 6.69% rate of return compounded annually. Saving a bit more—$455 a month instead—gives you more than a $1 million after 40 years.
• If you start investing $300 monthly at age 35 and retire at age 65 (with 30 years to save): You’ll end up with slightly more than $320,000 worth of savings, assuming a 6.69% rate of return compounded annually. To reach $1 million by age 65, you’d need to save significantly more: $935 monthly.

Which Retirement Accounts Should You Use To Save?

There are a variety of tax-advantaged retirement accounts to choose from such as 401(k)s and individual retirement accounts (IRAs).

A 401(k) can be a great starting point for many people, as many companies offer this type of retirement plan and offer what’s known as an employer match.

With a traditional 401(k), you invest pretax money and that money grows tax-free over time. However, when you take distributions in retirement, you’ll have to pay taxes on those withdrawals. This can be beneficial for those who anticipate being in a lower tax bracket in retirement.

With an employer match, your employer will ‘match’ your 401(k) contribution up to to a certain amount.

So if your employer offers a full 5% match on your salary of $60,000, you would need to put away $250 a month in your 401(k) to get the $250 match from your employer.

If you did, you’d save $500 monthly, which would put you well on your way to $1 million if you started saving in your 20s.

Other retirement accounts, like a Roth IRA, offer a different type of tax advantage: You pay tax on your upfront contributions and can take tax-free distributions in retirement. This is helpful for those who think they’ll be in a higher tax bracket in retirement.