If You Put Just $500 in Your 401(k) Every Month for 10 Years, You Could Have This Much Cash by Retirement

Source The Motley Fool

If you put $500 into your 401(k) every month for 10 years, that's a total of $60,000 that you're saving. And unless you're using a Roth 401(k), which has its own tax benefits, you've likely received a tax deduction for every dollar you contributed.

You might be surprised at the nest egg this contribution rate can produce between now and retirement. And that's especially true if your employer matches your contributions.

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How much can your 401(k) investments grow?

Historically, the stock market has produced returns of about 10% annually, on average, over long periods of time.

However, you likely won't have all of your retirement savings invested in stock-based funds. We won't get too deep into the topic of 401(k) allocation strategy, but the general idea is that you'll have most of your money in stocks when you're young and will gradually shift more to fixed-income investments (that is, bonds).

For the purposes of calculating potential growth, it's reasonable to expect an average rate of return of about 7% from a properly allocated 401(k).

Without further delay, here's how $500 per month in 401(k) contributions could grow, depending on how long you have until retirement and if your employer matches your contributions.

Years Until Retirement

7% Rate of Return

If Employer Matches

15 years

$124,135

$248,269

20 years

$174,105

$348,210

25 years

$244,191

$488,383

30 years

$342,491

$684,982

35 years

$480,361

$960,722

40 years

$673,732

$1,347,463

Data source: Author's own calculations. The employer match assumes a dollar-for-dollar (100%) match. Check with your 401(k) provider for your plan's details.

Of course, there's no way to know exactly how your investments will perform, and your actual rate of return could certainly be significantly higher or lower than 7%. Having said that, the point is that a 401(k) can be a fantastic long-term wealth creator, and that's especially true if you can take advantage of employer matching contributions.

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Disclaimer: For information purposes only. Past performance is not indicative of future results.
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