The Power of Compound Interest
Compound interest is what happens when your earnings start earning more earnings. Over the years, your small investments snowball.
For example, if Sarah invested $100/month in a fund that returned an average of 8% annually, she would have nearly $150,000 after 30 years. That’s just from putting aside a little each month.
Albert Einstein called compound interest the “eighth wonder of the world” — and for good reason. The earlier you start, the more time your money has to grow.
Real-Life Example: Vanguard
Vanguard offers low-fee index funds that are ideal for long-term investors. Sarah chose a Vanguard Target Retirement Fund, which automatically adjusts its risk level as she gets closer to retirement. It’s a hands-off approach that’s perfect for busy people.
Choosing the Right Investment Account
How you invest your $100 matters. Certain accounts offer better tax advantages for retirement.
Roth IRA vs Traditional IRA
A Roth IRA allows you to contribute after-tax income. The major benefit? Your money grows tax-free, and you don’t pay taxes when you withdraw in retirement. It’s great for people who think they’ll be in a higher tax bracket later.
A Traditional IRA, on the other hand, offers upfront tax benefits — your contributions may be deductible now, but withdrawals are taxed later.
đź’ˇ Best Free Tool: Fidelity IRA Calculator
Use it to compare different account types based on your age and goals.
Sarah’s Choice: Roth IRA
Sarah opened a Roth IRA with Fidelity, an investor-friendly platform with zero minimum balance and no maintenance fees. She automated her $100/month contributions, making investing feel effortless.
What Should You Invest In?
Picking where to put your money can be confusing. Let’s simplify.
Low-Cost Index Funds
Index funds track a market index like the S&P 500. They are low-risk, diversified, and cost-effective — perfect for beginners. Sarah invested in FZROX, a zero-expense-ratio total market fund offered by Fidelity.
Target-Date Funds
Target-date funds automatically adjust your investment mix based on your retirement year. For example, a “2055 Target Date Fund” will start with more stocks now and gradually shift to bonds. It’s set-it-and-forget-it investing.
đź› Free Tool: Morningstar Fund Screener
Use this to explore and compare top-performing low-cost funds.
Staying Consistent on a Budget
You don’t need to be wealthy to invest regularly. Even small habits can make a big difference.
Automate Your Contributions
Set up automatic transfers to your retirement account every payday. You’ll be less tempted to spend it if you never see it.
Example: Bank of America lets you schedule recurring transfers for free. Linking it directly to your brokerage makes it seamless.
Cut and Redirect Small Expenses
Think about your daily coffee, subscription services you don’t use, or unused gym memberships. Even $25 a week redirected into your Roth IRA can grow massively over time.
Common Myths About Retirement Saving
Let’s clear up some popular misunderstandings that stop people from getting started.
“I’m Too Young to Worry About Retirement”
In reality, starting young means you can invest less and still end up with more, thanks to compound interest.
“I Need a Lot of Money to Start”
Most brokerages now allow you to begin with no minimum investment and contribute as little as $1. You can absolutely start with just $100/month.
“I’ll Start Saving Later When I Earn More”
This is a dangerous delay. Life expenses increase with income. Getting into the habit now builds financial discipline and long-term security.
Conclusion: Your $100/Month Retirement Plan Is Possible
Sarah didn’t win the lottery. She didn’t have a finance degree. She simply took action and stayed consistent. Today, she’s on track to retire with over six figures — all from a simple $100/month strategy.
You don’t need to be perfect to start. You just need to start.
Whether you’re a student, young professional, or someone playing catch-up, a solid retirement plan is within reach. Start small, think long-term, and let time do its magic.
FAQs
1. Can I really retire just by saving $100/month?
Yes, especially if you start young. Compound interest can turn small, consistent investments into a large nest egg over time.
2. What’s the best type of account for this strategy?
A Roth IRA is ideal for many beginners due to its tax-free growth and withdrawal benefits.
3. Do I need a financial advisor to start?
Not necessarily. Many platforms like Fidelity and Vanguard offer guided setup tools for free.
4. What if I miss a few months of investing?
That’s okay! The key is to stay consistent over time. Just resume when you can — progress matters more than perfection.