How to Double Your Retirement Savings While Barely Raising a Finger?


You can spend a lifetime and still not know everything there is to know about investing — not even close. Just look at Warren Buffett, chairman and CEO of Berkshire Hathaway. He is 92 and has been investing all his adult life, and although he is considered one of the greatest investors ever, he still makes mistakes.

On the other hand, you don’t have to be Warren Buffett to be a successful investor. You can grow your retirement portfolio by a factor of 10 or more by doing a few very simple things.

Invest in your employer sponsored subscription and get the full match

If you don’t invest in your business? 401(k) or employer sponsored plan, this is the first step. Most workers with access to these types of plans use them, according to data from the US Census Bureau, but participation does decline for younger workers. That’s a shame, because Millennials and Generation Z employees will get the most out of their plans because they have a longer time horizon to save, invest, and replenish their savings — as I’ll show later. So it is imperative that they start contributing as soon and as early as possible.

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But putting some of your paycheck aside for your 401(k) is only part of it. The other requirement is to get the full company match. The best feature of a 401(k) plan is the company match, which means that the company gives you free money up to a certain percentage that you contribute. The match varies – for some it’s 4%. For others it’s 2%, and some might give you a 50% match on the first 6%. There are also tiered matches, where an employer can match 100% on the first 2% and 50% on the other 2% up to the limit. Not all companies offer a match, but most do in one form or another.

The most common match is 100% to the 4% you contribute each paycheck, so let’s do the math and see how fast that can grow.

A millionaire by retirement?

For example, if you’re a millennial, 30 years old and making $40,000 a year, here’s how you can turn that into over $1 million when you retire. Based on a $40,000 salary at age 30, with a 4% annual contribution to your plan and a 4% employer match, taking into account a 3% increase each year until you retire at age 65 , you would have saved about $1.2 million in retirement by age 65. This assumes an annual investment return of 10%, which is the long-term average of the S&P 500.

If you wanted to be more conservative and take a 2% raise and an 8% annual investment return every year, you’d have about $711,000 by age 65.

Now let’s say you didn’t start saving on the plan until age 40 — because you were working somewhere without a 401(k) or just didn’t start saving for whatever reason. Based on a $50,000 salary at age 40 — and inserting all the numbers from the first scenario — you’d have about $526,000 at age 65 at age 25. So by starting 10 years earlier, you would double your money in retirement.

If you want to play around with these numbers, contribute more or less, or take a different salary, annual raise, or investment return, you can find a 401(k) calculator online and do the math yourself.

But this just shows how you can grow your retirement savings by leaps and bounds by simply starting investing as early as possible and taking full advantage of your business match.

Dave Kovaleskic has no position in any of the listed shares. The Motley Fool holds positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 Berkshire Hathaway calls on Berkshire Hathaway (B shares), short January 2023 Berkshire Hathaway (B shares) and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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