- The earlier you start saving for retirement, the more time your money can grow with compound interest.
- As you near retirement age, transition your retirement portfolio away from stocks and into bonds.
- How you save for retirement has important tax implications for you and your family.
To effectively save for retirement, you must establish realistic long-term goals, regularly contribute to one of the best retirement plans, and strategically manage your assets. But the best way to grow your nest egg is by starting your retirement fund as early as possible.
Here are helpful tips, investment strategies, and savings accounts for growing your retirement savings and securing your financial future.
Understanding the importance of saving for retirement
Why retirement savings matter
Retirement planning involves making critical financial decisions that shape your future quality of life. Without sufficient retirement savings, you may be forced to work longer or downsize your lifestyle. While pursuing other financial goals like buying a home or paying off debt is still important, consistently contributing to your nest egg should be a priority.
According to a 2024 AARP survey, nearly one in five adults aged 50 and up have no retirement savings. Inflation and higher living costs have sparked increased concern among 70% of older adults who worry that their income can't keep pace with rising prices, with 26% of participants expecting never to retire.
Although there isn't an immediate fix to the financial stress concerning people approaching retirement already, regularly contributing to retirement savings from a young age is a proven savings strategy for decreasing financial strain on future retirees.
How to start saving for retirement
When beginning to save for retirement, consider how you want to live when you're older. You can start charting a path to get there by opening an employer-sponsored 401(k), IRA, or other comprehensive retirement plan. You aren't limited to just one account; many people have multiple retirement accounts for double the tax advantages.
No matter when you start saving for retirement, it's important to take advantage of tax deferrals, employer matches, and other ways to maximize your retirement funds. Also, remember to adjust your investment portfolio over time, moving out of riskier assets in favor of a more conservative allocation as you age.
The cost of retirement
The IRS estimates that most retirees should save enough to receive 80% of their yearly salary during retirement. Another general rule of thumb is to save at least 15% of your pre-tax income each year. Of course, everyone's situation is different, so make sure to assess your retirement needs thoroughly.
Two key factors will determine how much you need to retire:
- When you plan on retiring
- How you want to live in retirement
For example, if you want to travel more during retirement than you did during your working years, Fidelity estimates you will need 10 times your salary in savings by full retirement age. But if you plan on living more modestly, you may only need eight times.
Here is how much Fidelity estimates you should have saved by age:
| By age | Salary amount you should have saved |
| 30 | 1x your starting salary |
| 35 | 2x your starting salary |
| 40 | 3x your starting salary |
| 45 | 4x your starting salary |
| 50 | 6x your starting salary |
| 55 | 7x your starting salary |
| 60 | 8x your starting salary |
| 67 | 10x your starting salary |
Strategies to maximize your retirement savings
Here is how to maximize your retirement savings and other notable retirement planning tips.
Start contributing early
Many young workers do not contribute to their retirement accounts right out of the gate. If you're in your 20s, you may feel like you have all the time in the world to start investing for retirement. But by not contributing to your 401(k) and investing the funds now, you're missing out on an essential step to growing your wealth: time.
"The sooner you start investing for retirement, the more time your money has to grow. And every bit you contribute now to retirement savings can help you reach your retirement goals later on – just $100 each month can compound over the long term to make a big difference," explains Alex Michalka, vice president of research at Wealthfront Investing.
The best way to increase your retirement savings is to contribute as much as you can as soon as possible. The advantage of a retirement savings account, like a 401(k) plan, is that it accumulates compound interest. So, the longer the funds are invested in your account, the more interest it accumulates.
Max out your employer-matching contributions
Many employers offer matching contributions for 401(k)s and similar plans, meaning they'll match any contribution you make up to a certain amount. Maxing out your matching contributions gives you free money, growing your nest egg even faster.
So, if you have an annual salary of $50,000 and your employer offers a 5% match, you should aim to contribute at least 5% of your salary ($2,500) annually, so your employer contributes another $2,500. You can contribute more, but you won't receive additional employer contributions.
A handful of online investment platforms now offer IRA matches. While these match rates tend to be much lower than employer-sponsored matches (1% to 3%), every little bit helps. Some popular investment apps offering IRA match contributions are:
- Robinhood IRA
- Webull
- Acorns
Diversifying investments in your retirement portfolio
Diversification is an essential investment strategy for reducing your portfolio's exposure to risk and volatility. The stock market is always shifting, but diversification helps minimize potential losses by distributing funds into multiple baskets. That way, your portfolio won't suffer a significant loss if one asset falls through.
The simplest way to diversify your holdings is to invest in baskets of funds, such as index funds, which offer market exposure across and within multiple sectors.
While diversifying your portfolio helps limit potential loss, it doesn't eliminate it. Diversification also limits your chance of higher gains.
Withdrawing funds at a sustainable rate
No matter how much you save, you could spend your final years in trouble if you spend too quickly. And if you spend too slowly, you might not be able to enjoy the money you've saved.
"The standard way of thinking is that asset allocation needs to get more conservative over time," says Javier Estrada, professor of finance at IESE Business School. However, "asset allocations need to be personalized depending on the individual's goals, portfolio holding period, and risk tolerance," he says.
One common metric is the 4% rule. You spend 4% of your retirement savings in your first year, then only increase that figure with inflation. For example, if you have $1 million saved for retirement, then you'd withdraw $40,000 in the first year. If the inflation rate is 2%, then you'd withdraw $40,800 next year.
Save for retirement
Saving for retirement FAQs
How much should I save for retirement?
How much you should save for retirement depends on your estimated retirement age, life expectancy, and lifestyle. A general rule is to aim for at least 15% of your pre-tax income each year, but individual needs may vary.
When should I start saving for retirement?
You should start saving for retirement as soon as possible, as it's never too early to start contributing to your nest egg. Retirement money grows over time with compound interest and long-term investment strategies. The younger you start investing, the more time your money has to grow.
What is a good retirement savings strategy?
Good retirement saving strategies include maximizing employer match contributions, diversifying investments, and starting to invest at a young age. As you near retirement age, you will want to adjust your asset allocation and adopt a more conservative investment approach.
