Saving for retirement is a long-term process. A contribution that feels small today can become part of a larger savings habit over time. When money remains invested, any growth may stay invested too, giving it the potential to build on what came before.

What is compounding?

Compounding means earning growth on your original savings and on growth that has already been added. Over time, that can help your account value build on itself.

A simple example

Suppose you invest $1,000 and it grows 7% each year. If you leave the growth invested, the next year’s growth is calculated on the new, larger balance—not just on the original $1,000.

That increasing growth is the compounding effect. In year two, the account earns $74.90 —not $70 — because the 7% growth applies to the original $1,000 plus the $70 already added.
Year Starting balance 7% growth Ending balance
1 $1,000.00 $70.00 $1,070.00
2 $1,070.00 $74.90 $1,144.90
3 $1,144.90 $80.14 $1,225.04

This is a hypothetical illustration; actual investment returns vary and are not guaranteed.
How compounding can work in a retirement account
image of a notepad with a graph moving up and down with a pen sitting atop

When you contribute to your retirement account, your money is invested through options available in your plan. Those investments may generate returns, such as changes in value, dividends or interest, depending on the investment option.

If that growth remains invested, it can contribute to future growth over time. Your contributions, how long your money remains invested and the performance of your investment options all affect your results.

Why time and consistency matter

Starting earlier may give your contributions and potential investment growth more time to work together. If you are already in the middle of your career—or closer to retirement—compounding can still help you make progress toward your goals.

You do not have to make a large change all at once. Enrolling, setting up or restarting your contributions, or considering whether to increase your contributions can be a meaningful next step.
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Enroll in your retirement plan or log in to review your contributions today.
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To learn more about investing concepts and investing through your plan, visit our resource center.