Growing your investments: The truth about retirement savings

The image depicts hands counting out money.

Retirement may be a long way off, but you can — and should — start saving for it now. Here’s how.

You’ve likely heard that saving for retirement is important. And while you may have already started saving — 59% of millennials have — you may also feel like you’re simply not making enough to put away — 64% say they’re not. Data has shown that if you start saving early, it’s entirely possible to accumulate a lot — $1 million (!) — by the time you retire. How so? Take a look at these numbers from Wells Fargo.

Starting to save

Almost half of millennials recently surveyed said they don’t expect to save $1 million for retirement, which is a noted target that can help fund a multi-decade retirement. But it really is possible; there are manageable ways to start a path to $1 million for retirement.

First, you need to open a retirement savings plan. Your employer may offer a 401(k) or similar plan as a benefit to you. With a retirement plan, you can generally set aside a certain percent of money from each paycheck, before taxes are taken out. In most cases, you direct how the contributions are invested (it’s typically pretty simple — you pick high-, medium-, or low-risk investments) into funds screened by your employer plan.

While your money grows in your 401(k), you do not pay any taxes on it. If your employer does not offer a 401(k), or you work for yourself, you can opt to start an Individual Retirement Account (IRA).

Contribution amounts matter

Research shows that the No. 1 factor in saving for retirement is your contribution rate, and regular contribution rate increases. There are a few ways to make contributing easier:

  1. Stockpile. Contribute as much as you can. Consider bonuses and raises good opportunities to contribute more. A good goal is to contribute at least 10% of each paycheck.
  2. Automate. If your plan offers to increase your contribution amount automatically — like increasing 1% each January 1 — consider taking advantage of that feature.
  3. Go gradually. If you can’t start out contributing 10% right out of college, try increasing your contribution rate gradually — perhaps starting with putting 5% of your paycheck in your 401(k), and increasing it to 13% over the course of 5 years. For example:

Participation is key

Even if you can’t contribute much, you can focus on a regular retirement savings schedule. Studies have shown that millennials who aren’t yet saving for retirement say the average age they will begin saving is 32. But here’s why that might not be the best idea: You would save an estimated 51% less for retirement if you begin saving at age 32 versus age 23 — even though you’re only thinking of waiting nine years to get started.


This is all because of the power of compounding. Along with nine additional years to save, over time you’ll get significantly more payoffs in your retirement account — and that can add up.

Make the most of your match

Another way to increase what you’re putting toward retirement is to take advantage of your company match, which is when your company actually matches the money you’re putting toward your retirement plan. If your employer offers 401(k) contribution matches, at a minimum contribute as much as possible up to the match amount, otherwise you’re leaving free money on the table.

Here’s an example of how matching works with a $60,000 salary:


And finally, diversification ensures that your retirement savings are spread across different companies, investment types, and markets. One mistake that many people make is investing too conservatively with their 401(k) when they’re young. If you’re a beginner when it comes to investing, consider diversified asset types such as stocks (mutual funds). Some companies also offer target date funds or other investment advice products available in 401(k) plans to make investing easier if you’re uncomfortable selecting which investments to choose.

Crunch the numbers and see how much you’ll save over time with our 401(k) calculator.

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