Moore for Your Money Blog

What is a nest egg and how do you build it?

If you have a financial goal and you are saving for retirement, you may have heard the term ‘nest egg’ used to describe your accumulated savings. Did you know that this term is based on a hen’s nest? A nest egg is also a farming term meaning a real or artificial egg is placed in a hen’s nest to encourage the hen to lay eggs there. By putting the nest egg in the nest, the hen will hopefully lay more eggs to increase the farmer’s revenue. Likewise, your financial nest egg will solidify your financial future as the more eggs (money) you put in your nest (retirement savings and investments), the more your assets will build and grow.

What is a financial nest egg?

The nest egg refers to an account set aside for future purposes. Ideally, the nest egg grows large enough to meet your savings goals and provide for a comfortable future. A nest egg focuses on longer-term goals such as saving for retirement, paying for a child’s college education, or buying a home. A nest egg could also help you cover emergency costs like medical bills, or expensive home and auto repairs.

Why is having a nest egg important?

A nest egg helps you save for retirement and achieve financial goals. By building a nest egg early in life, say starting in your 20s or 30s, and contributing to it regularly, your money will have more time to grow and weather any market downturns. For instance, if you start investing in your nest egg at age 25, and you retire at age 65, your money will have 40 years to accumulate. Building a solid nest egg can help you live the life you want when you are no longer working. And thanks to the power of compound interest, the sooner you begin saving, the more time your money will have to grow.

How do you build a nest egg?

A successful nest egg starts with a defined plan and strategy, such as saving a set amount of money each month or week. The nest egg funds must be saved in its own account, not kept in your checking account where you might end up spending it. Do not touch your nest egg, this is money you want to protect at all costs. If your nest egg is for retirement, consider an employer-sponsored plan such as a traditional 401(k) or Roth 401(k). Your employer may match your pre-tax contributions, this is free money to you, plus you will receive tax advantages in these types of accounts. If you max out your employer-sponsored plan, you can also set up an individual IRA or Roth IRA. If you are saving for college, a 529 college-savings plan also offers tax advantages. Need the money sooner than retirement age? Make use of taxable bank savings accounts and Certificates of Deposit. You won’t have the tax advantages, but you will have flexibility with your money. Compounding interest on all of these plans means you earn interest on interest which allows your money to grow even more over time.

How much money should be in a nest egg?

I am often asked this question and I wish I could tell you the answer. There really is no one set amount for a nest egg. It will be different for each person, depending on your goals and the type of lifestyle you want in retirement. As a general rule, saving between 10 and 15% of your salary each year will get you well on your way to a comfortable retirement. Recent research by the Federal Reserve found that the median retirement account balance in the U.S. was just $87,000 in 2023, well below the $1 million benchmark I frequently hear about.

Building and maintaining a nest egg is essential to your financial health and well-being. Many people manage their own nest egg, guiding and tracking their savings and investments. Whether you or a financial advisor oversee the nest egg, be sure to consult with your tax advisor for any tax implications. At Anahuac National Bank, we care about what matters most to you and are here to help with any of our FDIC insured savings programs to get you started. We appreciate the trust you place in us.