I’ve Read Online That Saving $300 Monthly Can Make Me a Millionaire — but I Think Everyone Is Missing Something

It’s an unfortunate thing that a lot of people enter retirement with almost no savings, or minimal funds socked away in an IRA or 401(k). People in this boat often end up very reliant on Social Security.

But with the average monthly benefit being under $2,000, that’s not a lot of income to live on. And also, Social Security benefits don’t tend to do a good job of keeping pace with inflation. So it’s important to have funds outside of those benefits. And the more money you retire with, the more comfortable your senior years might be.

In this Reddit post, we have someone wondering if saving $300 a month is enough to make them a millionaire for retirement. My answer is that it’s a good start. But there’s more to the story than that.

Why a $1 million nest egg may not cut it

Saving $300 a month over 40 years will get you to $144,000 on the basis of your contributions alone. If you invest that money, it could end up being worth a lot more.

In fact, investing $300 a month for 40 years at an annual 9% return, which is largely in line with the stock market’s historical average yearly return, will get you to about $1.2 million. And that’s a nice sum of money.

But will it be enough for a comfortable retirement? That’s a bit more questionable.

A nest egg in the vicinity of $1 million might go reasonably far today. But in 30 years, it’s going to have a lot less buying power. We can thank inflation for that.

In recent years, we’ve seen how inflation has driven living costs upward. Over a 30-year period, the value of a dollar is likely to shrink even more substantially. So while retiring with $1 million or $1.2 million may not be such a terrible thing today, in 30 years from now, we don’t know what a nest egg that size will actually be worth.

You may want to aim higher

If you can save $500 or $600 a month instead of just $300, you stand to retire with a lot more money — and a nest egg that gives you a lot more buying power. So it’s best to try to do that, even if it means cutting some spending in the near term. You can also turn to the gig economy for extra money for your nest egg.

Remember, too, that any savings you bring into retirement may have to last for 30 years, or somewhere in that ballpark. So you’re limited in how much you can withdraw each year.

Even if you retire with $2.5 million, if you limit your withdrawals to 4% per year, that’s $100,000 in annual income. It’s a nice about of money, but it doesn’t make you loaded, per say.

And that’s okay — you may be fine with that sort of income, especially when combined with Social Security. The point, however, is that saving $300 a month, while certainly respectable, may not be enough for you to enjoy retirement the way you want to. So it’s a good idea to push yourself to save more.

You may also want to sit down with a financial advisor to try to map out a retirement savings goal based on factors like your current age, inflation, and your future needs and wants. An advisor can also help you invest your portfolio in a savvy manner so that your assets are likely to grow at a nice pace.