Am I On Track for Retirement?

How to make sure you can retire on time

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Typically, many people lack confidence in retiring comfortably due to financial instability. Just 37% of employees nationwide believe they’ll be able to retire when they want, according to a 2019 survey from PwC. The number one concern? Running out of money. That confidence is actually lower for millennials, the youngest generation accounted for in the survey. Thirty-five percent of millennials, compared to 49% of baby boomers, were confident about retirement.

While the data is disheartening, the fear of never being able to retire can be addressed with some pretty basic planning. That’s especially true if you’re in your 20s since time is on your side, and that time can be leveraged to build a significant retirement nest egg from even a small amount of savings. Here’s what you need to know about preparing for retirement in your 20s.

Key Takeaways

  • If you’re in your 20s and think you won’t be able to retire, consider how much starting early can help.
  • Starting early, saving each year, and investing at a young age can potentially provide a large portion of your retirement income.
  • Young people have time on their side, and if you start saving early, you can use the power of compounding to your advantage.
  • If possible, participate in a 401(k) plan to get the employer match, which is when your employer contributes a percentage of your salary to your retirement.

Retirement Savings in the U.S.

In a 2020 retirement confidence survey, 25% of 25- to 34-year-olds claimed to have less than $1,000 saved toward retirement. That’s a higher percentage than any other age group surveyed, but 16% of people between 45 and 54 responded that they have less than $1,000 saved, too. 

Social Security

Social Security is a significant source of retirement income for most people in the U.S. The benefit amount varies depending on your age, earnings, and tax filing status.

However, for someone with a lower income, earning 45% of the average salary who plans to retire at age 65, Social Security usually replaces about half of their earnings. Benefits for a higher earner—someone who earns 160% of the average wage—replace about one-quarter of their earnings.

There are concerns about the future of Social Security with the trust fund on track to run dry by 2034. However, Social Security taxes will still be enough to fund about 78% of benefits.

How Much You Need to Save for Retirement by Age

It's helpful to view the process of retirement saving as a journey since you'll likely have unexpected expenses and fluctuations in income over the years. Below is a guideline for how much should be saved for retirement by various age milestones.

  • Age 30: One year equivalent of your salary
  • Age 35: 2xs your salary
  • Age 40: 3xs your salary
  • Age 45: 4xs your salary
  • Age 50: 6xs your salary
  • Age 55: 7xs your salary
  • Age 60: 8xs your salary
  • Age 67: 10xs your salary


While you need to save, you don’t have to save it all at once. Set some reasonable goals to hit by different ages. For example, aim to save one year’s worth of your salary by the time you reach 30.

The 4% Rule

The 4% rule is a guideline that helps calculate how much you need to save for retirement. Under the 4% rule, you would withdraw no more than 4% of your savings each year in retirement while the remaining savings would be invested. The 4% rule can help you calculate how much in total savings is needed based on an expected annual income in retirement.

For example, if you expect to need $50,000 per year to live on, you would divide $50,000 by 4%, which equals $1,250,000 ($50,000 ÷ 0.04). In other words, you would need a total of $1.25 million to safely withdraw $50,000 per year and not run out of money in retirement.

These amounts do not include Social Security benefits or other sources of income. Starting early, saving each year, and investing at a young age can potentially provide a large portion of your retirement income.

Starting Early With Your Retirement Planning

If you’re in your 20s and think you won’t be able to retire, consider how much starting early can help. Below is a comparison of how much your retirement savings could be if you started saving at different ages by using the online savings calculator from

Let's assume that you save $3,000 per year ($250 per month) and earn an annual return of 5% on that money in your retirement account. 

Started Saving at Age 40

If you started saving when you were 40 and saved $3,000 per year, earning 5% each year, you’d accumulate $203,848.30 by the time you turned 70. 

Started Saving at Age 30

If you started saving at age 30, your total retirement savings would be $370,638.19 by age 70.

Started Saving at Age 20

Starting when you’re 20 increases your savings at age 70 to $642,321.44—over three times the amount you’d have if you waited until 40 to save and invest for retirement. This growth is due to compounding, which is the interest or investment gains reinvested over the years.

As a result, young people have time on their side and if you start saving early, you can use the power of compounding to your advantage.


While most people begin full-time employment in their 20s—generally providing them the chance to start saving for retirement at that age—the majority don’t actually begin investing in workplace retirement plans until 37.

Smart Strategies for Saving for Retirement in Your 20s

Starting early is a powerful way to improve your chances for a good retirement. In addition to starting to save for retirement in your 20s, there are other strategies you can take to ensure a better retirement experience in the future. 

Open a Roth IRA

Roth IRAs are individual retirement accounts that allow you to save and invest money that can be withdrawn tax-free in retirement. Withdrawals from traditional IRAs and other retirement accounts are taxed as income, and the difference can be substantial.

Anthony Watson of Thrive Retirement Specialists in Dearborn, Michigan, told The Balance that funding a Roth IRA is best early in your career when you are earning less, and being taxed less.

“Take advantage of the ability to contribute to this valuable account type before it potentially gets phased out at higher earnings later,” Watson said.

Combined with other retirement accounts like a 401(k) or IRA that are taxed at personal income rates when the money is withdrawn in retirement, you could craft a superior, tax-efficient withdrawal strategy.

Control Your Expenses 

In most cases, your salary will likely be lower in your 20s compared to later in your working life. Finding money to save for retirement often boils down to your ability to keep expenses low rather than securing a high-paying job. Chris Diodato, founder and lead financial planner of WELLth Financial Planning in Palm Beach Gardens, Florida, told The Balance that these tips can help keep expenses low as a young adult:

  • Don’t sink money into expensive cars, no matter how much you want to.
  • Keep your utility bills in check by continuously looking for opportunities to decrease monthly expenses
  • Pay your credit cards off regularly to avoid interest charges.

Take Advantage of Your 401(k)

When you are young and just starting out, it may be difficult to save a substantial amount. As your income grows, though, try to increase your savings at the same time. When it makes sense, get as close to the maximum annual contribution in your 401(k) as you can. For 2022, that’s $20,500 per year.

Also, many 401(k) plans offer an employer matching program in which they contribute a percentage of your salary to your retirement account as long as you contribute too.

For example, an employer might match your first 5% of contributions dollar-for-dollar, meaning as long as you contribute at least 5% per year, your employer also contributes 5% of your salary. Be sure to sign up and participate in your 401(k), if available, since the employer match is free money.


Some 401(k) plans can also be automated so that your contribution increases by 1% or 2% each year. By signing up for automatic annual increases, even if you start by saving a small percentage of your income, you could be up to 10% or more by the time you’re 30.

The Bottom Line

Retirement seems like a long way off when you are in your 20s. However, time is a valuable tool that you can use to eventually reach a comfortable lifestyle in retirement. By saving and investing early to take advantage of compound returns, being mindful of taxes, controlling your expenses, and increasing your savings rate over time, you can put retirement within reach.

Frequently Asked Questions

How do I know if I am on track for retirement?

As a guideline, you should have saved a certain amount by each age milestone. For example, by age 30, you should have saved the equivalent of one year's salary. By age 40: 3xs your salary, by age 50: 6xs your salary, by age 60: 8xs your salary, and by age 67: 10xs your salary.

What is a good monthly retirement income?

To calculate how much you need to live on in retirement, take 80% of your current salary. For example, if you currently earn $70,000 per year, 80% would be $56,000, which is how much income you'd need in retirement.

How much should I save for retirement in my 20s?

When you are young, it's important to start saving early, even if it's only in small amounts. Since you have many years until retirement, you can use the power compounding to grow wealth. Compounding is when you earn interest on your earnings or interest over time.

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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.
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  2. Employee Benefit Research Institute. "Retirement Confidence Survey," Page 1.

  3. Center on Budget and Policy Priorities. "Policy Basics: Top Ten Facts about Social Security."

  4. Social Security Administration. "Status of the Social Security and Medicare Programs."

  5. Fidelity Investments. "How Much Do I Need to Retire?"

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  7. Edelman Financial Engines T.R.U.S.T. Fund for America. "A Proposal to Provide Guaranteed Lifetime Incometo Every Future Generation," Page 1.

  8. Internal Revenue Service. "Traditional and Roth IRAs."

  9. Internal Revenue Service. "401(k) Plans."

  10. Internal Revenue Service. "IRS Announces 401(k) Limit Increases to $20,500."

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