How to save for retirement can be a loaded question. Still, preparing your finances for retirement is one of the most important things you can do. It ensures you have enough savings to live comfortably when you are no longer working.
Saving for retirement shouldn’t be confusing or complicated. In fact, it comes down to a couple of straightforward tips. Get started with our list of the best strategies to save for retirement.
1. Start Saving Today
Saving as early as you possibly can is one of the most important things you can do for your retirement. The sooner you start saving, the more you'll benefit from compound interest. Compound interest is how your assets generate earnings, which then become reinvested to generate more earnings.
Say you have $1,000 invested and it grows by 10% or $100 — leaving you with $1,100 at the end of the year. Now, let’s assume that next year your money grows by another 10%. This time, you didn’t make another $100. In fact, you’ve made $110. If you want to learn more, you can use a retirement calculator that gives you a better idea of how you can build your retirement income.
You can start an emergency fund, build a savings account that can serve several purposes and set saving goals. Remember, you could start with your checking account and work from there. The idea, right now, is to get started. Mobile banking makes this easier because an online banking account makes transfers easier, and banks often allow you to round up and save even more. You can hunt for a better interest rate in the future.
Compounding is one of the most critical ways wealth builds up over time. It can have powerful effects on boosting your retirement savings, which is why you want to start saving now to take full advantage.
2. Set a Plan
It’s important to have a retirement savings plan that takes into account specifics like your income, expenses, planned retirement age, possible inheritances and more. Ultimately, how much you should save varies person to person. Your savings plan can help you reach your retirement goals, but you want to also speak with an investment advisor and/or research here at Benzinga to learn more about your options.
Most experts agree that you should set aside at least 10% to 15% of your pretax income each year towards retirement. Realistically, you should be saving as much as you can afford. This is especially true as you approach your ideal retirement age.
3. Define Your Final Goals
Setting aside money each month to go towards your retirement savings account is a great goal. However, it helps if you know exactly how much money you’ll need to live comfortably in retirement. This will help you stay motivated to keep saving and make you feel more confident as you work towards your ideal retirement figure. Your savings strategy may also change because the cost of living will change, debt payments pay change and your bottom line may shift as the needs of your family change.
Generally, a person that retirees at age 65 with $1,000,000 of retirement savings can expect to earn roughly $40,000 in annual income from their savings alone. Depending on your lifestyle choices and other financial responsibilities, this amount may or may not be enough for you to live on.
4. Increase Deposits to Your 401(k)
Make sure to take advantage of your 401(k) plan if your employer offers one. A 401(k) plan allows you to put pre-tax income towards your retirement account. Which means you’ll be able to invest more without incurring a larger cut into your monthly budget.
If your employer matches your 401(k) contributions, you’ll want to take full advantage of their offer. Say your employer is willing to match 50% of employee contributions up to 5% of your salary. If you earn $100,000 annually and put $5,000 towards your 401(k), a $2,500 will automatically be added to your retirement account as part of your employer contributions. It’s essentially free money you’re going to want to have in your account.
5. Review IRA Options
If you’re self-employed or don’t have access to a 401(k), you can always open an individual retirement account (IRA). A Traditional IRA and a Roth IRA both come with tax advantages that can help boost your retirement savings.
A traditional IRA works very similarly to a 401(k). Contributions are tax-deductible and your funds are taxed only when you make withdrawals in retirement. A Roth IRA works a bit differently, as it’s funded with after-tax contributions. Roth IRA withdrawals in retirement, including qualified distributions and other earnings, are largely exempt from federal taxes and some state taxes.
However, in order to be able to contribute to a Roth IRA you must have earned under $153,000 in 2023 if your filing status is single. You’ll have to have earned under $228,000 in 2023 if you’re married filing jointly.
6. Delay Retirement
Many people consider 65 as the age of retirement. However, in 2021 you won’t be able to receive Social Security retirement benefits until you turn 67 years old.
The sooner you retire, the less Social Security benefits you’ll be eligible for and the sooner you’ll have to start withdrawing from your retirement savings. You also won’t be able to save as much if instead you were to wait a couple of years. Ultimately, if you’re worried about your retirement savings not being enough, it’s a good idea to postpone retirement for as long as you can.
7. Check Out Benefits for 50+
IRA and 401(k) plans are important retirement savings accounts, but there is a yearly contribution limit. The good news is that you can contribute more as you approach retirement age.
Even though 401(k) annual contributions are maxed out at $22,500, individuals turning 50 or older 50 in 2023 will be able to contribute an additional $7,500. The maximum you can contribute towards an IRA account in any given year is $6,500, but individuals 50 or older will be able to add in another $1,000.
8. Compare Your Current Retirement Plan
Whether you have a 401(k) plan, an IRA or another saving account types, you want to make sure you’re investing your money wisely. Different accounts come with various rules, fees or commissions that can ultimately affect your savings. It’s wise to talk to a professional about whether a retirement plan is working for you and how to save for retirement in the best way for your situation.
9. Investment Options
There are some investment options and brokerage accounts that are better designed for retirement. Investing is something that many people do because it gives them a little more control over their money—in much the same way working did. As you continue to explore different retirement investment accounts, make sure to consider the following:
- Best For:ETF and Mutual Fund Investingsecurely through Vanguard Personal Advisor Services's website
10. Monitor Your Retirement Plan
Regularly checking in on your retirement plan will help ensure it’s still in line with your long term goals. Regulations, fees, commissions and more can be subject to change. It’s also possible that your portfolio allocation may shift over time as certain investments grow.
Plus, you might find you’d prefer to alter your portfolio contributions depending on market conditions or your own budget. Whatever the scenario, staying in the know when it comes to your retirement plan will put you in a stronger position. Simply monitoring your retirement account is a good way of knowing that you have the appropriate amount of money, that you are reaching your goals and that you may be able to withdraw more funds for special purchases.
11. Get a Financial Advisor
If you’re looking for some personalized guidance on how to save for retirement, your best bet is work with a financial advisor. Financial advisors are certified professionals that can help you develop a plan for achieving your financial goals. They specialize in budgeting, cash flow analysis, taxes, estate planning, insurance needs, investments and of course - saving for retirement.
Your financial advisor can help you map out exactly how much money you’ll need to retire and the smartest way to achieve that goal. They can offer personalized recommendations for investment products and manage your finances even after you've retired—even if you’re part of a retirement system. A government organization, for example, provides you with a retirement plan or pension, but it doesn’t help you manage your account balance, a savings account you may hold, give investment advice, etc.
Working with a financial advisor can be extremely beneficial. However, it’s important to pick the right advisor based off of your own personal needs and lifestyle. Your pension payment is just the start of your retirement journey, and while you may also need to grapple with items like health insurance or death benefits, you need to learn how to properly manage the retirement benefits you receive. Here is a good place to start.
How to Save for Retirement the Right Way
As you continue to find the best way on how to save more retirement, remember that diversification is key.
While it’s important to maintain a retirement savings account, you’ll also need to know how your real estate, taxes, insurance needs and possible inheritance play a role. Ultimately, a financial advisor can help you take an all-encompassing approach to your finances.
Frequently Asked Questions
How much is enough to never work again?
The answer to this question largely depends on your individual lifestyle and financial needs. However, most people that are able to retire on $1,000,000 in savings have been able to generate about $40,000 a year in income.
What is the best age to retire?
Many people consider 65 as the right age to retire. However, social security doesn’t start paying out until you are 67 years old. Ideally, you’ll want to wait until you are 67 years old or older to retire.
Can you live off $500 a month?
Again, the answer to this question largely depends on your lifestyle choices. If you live with a relative and don’t have to foot any of your own housing payments, it may be possible. But in most cases, you will not be able to live off of $500 a month.