Goals to Help You Save for Retirement

Saving for retirement is essential. When you save for retirement, you are saving for your future. When you neglect to do so, you run the risk of not being able to take care of yourself when you are older. Your retirement goals should come before saving for your children’s education or going on vacation.

Establish savings benchmarks to reach at different ages—how much you should have saved by when. Plan for when to increase your contributions and when to begin shifting from aggressive to more moderate investments. The earlier you start to save, the less you will need to put aside each month to reach your retirement savings goals. Make your goals achievable so that you can stick with them.

Put a Plan in Place

Retirement goals
JGI/Jamie Grill/Blend Images/Getty Images

The best plan is the simplest one. Start saving for retirement ASAP. Relying on Social Security is not a plan. The easiest way to begin saving is to take advantage of any plan your employer offers. You can transfer money into it with every paycheck, and in many cases even earn a company match.

  • Sign up and invest in your company's 401(k).
  • Open a Roth IRA if your income qualifies you, and your company doesn't offer a retirement plan.
  • Open an IRA if you are not covered by a company policy.
  • Set up automatic payments to stay on track.

Budget in Retirement Savings

Many experts recommend putting away 15% of your gross salary toward retirement each year. Track your expenses by logging them for a week to identify places where you can find that cash.

If 15% is too much for you to handle, make a plan to get there. Start by saving what you can afford without putting yourself in debt. Try for 5%, then add 1% or more each year to make your way up to 15%. Sock away any extra money you get for gifts and bonuses.

When your pay increases, put all of the increase toward your retirement goal. How much you need to save will depend on the type of lifestyle you want in retirement and the age at which you want to retire.

Aim for Certain Saving Thresholds

The earlier you start to save, the more time your money has to grow through compounded returns and investment. Even if you get off to a slow start, you can still catch up. Monitor your progress against benchmarks for savings at certain ages.

One investment firm recommends having one year of salary saved by age 30, three years by 40, six years by 50, eight years by 60, and 10 times your annual salary by 67.

Circumstances such as how much income you can expect post-retirement will factor into the amount you should save.

The Center for Retirement Research at Boston College calculates that to replace 70% of pre-retirement income, a medium-earning worker must start saving 10% of their income at age 25 to retire at age 65. Delaying the start of savings to age 45 would require a 27% annual saving to achieve the same target.

Get to Know Your Retirement Account

Most people invest their retirement funds in a 401(k). This is one type of account that employers offer to help their employees save for retirement.

As with any type of retirement account, you often have the option to determine how much risk you are willing to take. Younger investors with a longer time horizon can afford to invest more aggressively, while those closer to retirement age might examine how much of their portfolio sits in stocks.

Fees can add up over the years and take a bite out of your proceeds. A 1% difference in fees can reduce performance by 28%.

Know When to Switch Up Your Strategy

In the earliest years, an aggressive approach to investing with the greatest percentage in stocks makes sense. There is time to even out any market fluctuations, and stocks are the investment class that yield the best performance over time.

As you get closer to retirement and to needing the money invested, it can make sense to switch to some different tools that perform better than a straight savings account but without risk. These include certificates of deposit (CDs).

As life expectancy increases, and retirees begin to live into their 90s, it still makes sense to keep some percentage of investment in the market to outpace inflation.

For those with insufficient savings, working longer—even if in a part-time capacity—may be the best long-term solution.

Have a Back-Up Plan

Jobs don't last forever, and you won't want to leave your 401(k) with an employer when you leave the company. It's best to make a non-taxable transfer into a rollover IRA so you can control how your money is invested.

If you are self-employed, you need to begin planning for retirement right away, because you won't be able to take advantage of employer matching programs or purchase company stock options.

Still, self-employment introduces more opportunities for business tax deductions, and the money saved can be used for investment in an account designed specifically for the self-employed, such as a SEP-IRA.

The SEP-IRA in tax year 2020 allowed up to 25% of income or $57,000, whichever is less, to be invested for long-term tax-deferred rates. In 2021, the limit is 25% of income or $58,000. This is nearly 10 times the amount an individual can invest in a standard IRA. Note that SEP-IRA contributions for 2020 can be made up to the date you file your 2020 taxes, including any extensions. A SEP-IRA is also suitable for a full-time employee who earns money with a side hustle, as is a self-employed 401(k).

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Center for Retirement Research at Boston College. "How Much Should People Save?" Page 5.

  2. Fidelity. "How Much Do I Need to Retire?"

  3. T. Rowe Price. "You're Age 30, 50, or 60: How Much Should You Have By Now?"

  4. U.S. Department of Labor. "A Look at 401(k) Plan Fees," Page 4.

  5. Stanford Center on Longevity Sightlines. "Financial Security Special Report," Page 27.

  6. IRS. "SEP Plan FAQs - Contributions."

  7. IRS. "2021 Limitations Adjusted as Provided in Section 415(d), etc.," Page 1.

Related Articles