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Saving $1,000 a year for retirement may not seem like much. Read on to see why it’s a pretty big deal. 

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You’ll need personal savings in retirement to cover your expenses, even if you’re eligible for Social Security. Those benefits will only replace about 40% of your pre-retirement earnings if you can bring home a typical wage, so retiring on Social Security alone can mean taking a pretty significant pay cut.

You’ll often hear that it’s a good idea to try to save 15% to 20% of your income for retirement. And that may be doable if you earn $200,000 a year. But if you earn $50,000 a year, not so much.

In fact, you may be in a position where you can really only afford to part with $1,000 a year. And that may not seem like a lot at first. But actually, if you save $1,000 a year for retirement over many years, you could wind up with a pretty sizable nest egg.

When you give your money lots of time to grow

If you earn $50,000 a year, saving $1,000 a year in an individual retirement account (IRA) or 401(k) means parting with 2% of your salary. So it may be doable to contribute that much, even though it means giving up something or other.

Now, you might think that $1,000 a year won’t go very far in the context of building up your retirement nest egg. But if you invest that money in stocks, you might generate a pretty strong return that, over time, allows your money to grow nicely.

Over the past 50 years, the stock market has delivered an average annual return of 10%, as measured by the performance of the S&P 500 index. So, let’s say you’re only able to save $1,000 a year for the future, but you do so every year for 45 years. If your portfolio gives you a 10% average annual return, you’ll end up with a balance of about $716,000 in time for retirement.

By comparison, the average person in their 60s today has $112,500 saved for retirement, according to Northwestern Mutual, while the average American across all age groups has $89,300. So if you were to amass a fortune of $716,000, you’d be well ahead of the game.

Make sure to find that money

As you can see, it doesn’t necessarily take a ton of money each year to build up a giant nest egg. But you do need to save some amount of money consistently. And finding $1,000 every year isn’t a given when you’re on a moderate or lower income and have a lot of bills to cover.

One thing you may want to try to do, though, is automate contributions of about $83 a month to a retirement account if you’re aiming for $1,000 a year. That way, your money will land in that account off the bat, before you’ve gotten a chance to spend it.

If you have a 401(k) plan, that’s actually your only choice, as these employer plans are funded with payroll contributions. But with an IRA, you’ll need to actively set up an automatic transfer. It’s a move worth making, though, because it could keep you on track with your savings goals.

You may need to be willing to minimize some expenses or join the gig economy with a side hustle to find that $1,000 a year. But think about it this way: If you don’t make that effort, you might end up having to live on just 40% of your income as a retiree. On the other hand, parting with $1,000 a year could set you up with your dream retirement, so it really is worth making those sacrifices.

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