Retirement planning is one of the most important parts of adult life. Unfortunately, not enough people take it seriously. According to studies, the median retirement savings for American households was just $87,000 in 2022. Even worse, about a quarter of Americans haven’t saved anything.

The good news is that most people have time to avoid falling into these statistics. So, how does someone retire comfortably, or even a millionaire?

People have used a specific retirement hack to retire with millions — most weren’t even high earners. It’s a hack that anyone can use.

Can it be so simple? Yes, it is.

The secret to building wealth is stunningly simple, but most people have difficulty translating its logic to real-world outcomes. I’m talking about compound returns. If more people understood how powerful it was, far more people would be retiring comfortably.

Very few rich people have earned and saved a million dollars, and only a small percentage of millionaires inherited their wealth. Earning a return on your money is, by far, the most common and direct path to building wealth for most people.

People underestimate what compounding can do for your money because they don’t think far out enough. Compounding becomes increasingly powerful the longer you let it work.

The difference a decade makes

Unfortunately, most people don’t grasp how big a difference time makes in compounding. They ignore their retirement during their 20s, 30s, and even their 40s, thinking of it as something they can throw together at the last minute. However, this is a tragically expensive mindset.

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Consider two hypothetical people and their retirement journeys:

Person A started saving as soon as they could and managed to invest $25,000 by age 25. It’s not easy for most 24-year-olds to scrape up $25,000, but it’s doable for many if tackled slowly and steadily throughout your late teens and early 20s. This person invests this money and doesn’t add a penny between then and when they retire at 65. Assuming Person A averages an 8% annual return on their savings (likely through investing), they would have approximately $543,000 at 65. Person A isn’t a millionaire, but they drastically outsaved the typical person putting in zero effort for most of their working life.

Now consider Person B, who managed to put together $25,000 and invested it similarly, but did so by age 35. Instead of stopping there, Person B invested an additional $200 monthly for their entire working life. That’s $2,400 per year, totaling $72,000 more than Person A invested over their lifetime. Yet, Person B will retire with less money than Person A — approximately $10,000 less.

Person B had to work much harder and still fell short of Person A simply because they waited a little longer to start.

Here is how anyone can maximize their retirement savings

The above example illustrates the math of compounding, so don’t feel discouraged if you’re reading this and feel behind the curve. The most important thing to know about compounding your money is that anyone can do it. Getting started is far more important than how old you are when you do it.

Starting later generally means saving or investing more to reach the same goal, but that’s OK. There are several tools available to help you.

For starters, you can use retirement accounts to help give yourself a boost. Many employers offer 401(k) plans with tax benefits, and some may even help boost your contributions with an employer match. Using a Roth IRA to save for retirement can reduce the taxes you pay in retirement, meaning you get to keep more of your money.

Additionally, you can invest your money to try to earn a higher return. The S&P 500 has historically proven to be volatile at times, but it averages 10% annual returns over the long term. There are also exchange-traded funds (ETFs) that mimic the S&P 500. These are a great place to park retirement savings that you don’t need for the foreseeable future.

Whether your retirement number is a million dollars or a different amount, you can unleash compounding to help you reach your financial goals.

The $22,924 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

View the “Social Security secrets” »

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