How to build a comfortable retirement starting with just $300 a month

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

However, don’t let perfection be the enemy of good. Saving any amount of money regularly can reap significant benefits in retirement.

Here’s how to calculate how much you need to save for retirement

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

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

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

(65,000 x 0.80) x 30 = $1.56 million

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

This is the size of your retirement fund if you saved $300 per month

Reaching $1 million or more in savings may seem difficult, but there are some factors working in your favor that can help you reach that number more easily than you think.

By investing early, you can take advantage of the power of compound interest, earning interest in addition to your interest. The key is to start early and be consistent.

The best way to take advantage of compound interest is to invest 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 past century is about 10%, but when we adjust for inflation and market volatility, this number is actually closer to 6.69%.

Taking this number, we can look at two scenarios:

• If you start investing $300 a month at age 25 and retire at age 65 (with 40 years to save): You’ll end up with more than $660,000 in savings, assuming a compound annual rate of return of 6.69%. Saving a little more — $455 a month instead — will give you more than $1 million after 40 years.
• If you start investing $300 a month at age 35 and retire at age 65 (with 30 years to save): You’ll end up with just over $320,000 in savings, assuming a compound annual rate of return of 6.69%. To reach $1 million by age 65, you’ll need to save a much larger amount: $935 per month.

What 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 is known as an employer match.

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

With employer matching, your employer will “match” your 401(k) contribution up to a certain amount.

So, if your employer is offering you a full 5% of your $60,000 salary, you’ll need to save $250 per month in your 401(k) to get $250 from your employer.

If you do this, you’ll save $500 a month, putting you on your way to $1 million if you start saving in your 20s.

Other retirement accounts, such as the Roth IRA, offer a different type of tax benefit: You pay tax on your contributions made and can take tax-free distributions in retirement. This is beneficial for those who believe they will be in a higher tax bracket in retirement.