It’s important to save independently for retirement rather than fall back on Social Security alone. That’s because those benefits will only replace about 40% of your income if you’re an average earner, and most people need roughly twice that much money to live comfortably during their senior years.
But the money you put into your retirement savings shouldn’t just sit there doing nothing. Instead, you should be investing that money so it grows into a larger sum over time.
In fact, it’s really important to make sure your invested savings grow at a rate that can outpace inflation. The reason? Though Social Security’s upcoming raise is pretty substantial, for the most part, those benefits do a poor job of helping seniors retain their buying power in the face of rising living costs. And so you’ll need solid growth in your savings plan to compensate, which investing could be your ticket to.
Now the tricky thing about investing is that the process can be daunting. This especially holds true if you’re new to picking stocks and aren’t quite sure how to decide whether one company or another deserves a place in your portfolio.
That’s why ETFs are a good bet when it comes to long-term savings. In fact, investing in ETFs could easily help you grow a $1 million nest egg — or more.
The upside of ETFs
ETFs, or exchange-traded funds, are funds that consist of a mix of stocks or bonds. ETFs trade just like regular stocks so that you can track their share price over time. And they’re a great way to take the guesswork out of investing your long-term savings.
Many ETFs are set up to track specific market indexes, like the S&P 500. This means you get an opportunity to diversify your holdings with a single investment.
Furthermore, ETFs that track the broad market benefit from general market gains. And so by loading up on them, you could set yourself up to retire a millionaire — even if you’re only making modest contributions to your retirement plan over time.
In fact, let’s say you’re able to invest $350 a month in ETFs over a 40-year period. An S&P 500 ETF might easily deliver an average annual 8% return during that long a window, since that 8% is a bit below the index’s historical performance. If you stick to this plan, all told, you’ll wind up with close to $1.1 million.
And that assumes you can only part with $350 a month. Even if you’re limited to an IRA for your retirement savings, you can currently max out your contributions at $500 a month if you’re under 50 or about $583 a month if you’re 50 or older. And the more you save and invest each month, the more wealth you can grow.
A simple way to retire wealthy
Some people prefer to assemble their own mix of stocks and use it grow their savings over time. But if you’d rather take the easy way out — which, to be clear, is perfectly OK — then ETFs could end up being a great bet. And to best take advantage of them, start saving and investing early so you can give your money even more time to multiply.
