Investing Retirement Planning Retirement Planning 101: Your Guide to Saving for the Future Learn to start putting money away early for a comfortable life later By Dori Zinn Updated on November 14, 2021 Reviewed by Thomas J. Brock Reviewed by Thomas J. Brock Thomas J. Brock is a CFA and CPA with more than 20 years of experience in various areas including investing, insurance portfolio management, finance and accounting, personal investment and financial planning advice, and development of educational materials about life insurance and annuities. learn about our financial review board Fact checked by Emily Ernsberger Photo: Luis Alvarez / Getty Images Saving for retirement always sounds like a good idea in theory, but it isn’t always easy in practice. The majority of Americans between the ages of 40 and 60 have less than $100,000 saved for retirement, according to a 2019 TD Ameritrade survey. Nearly 60% of people in the same survey said they believe $1 million will last them through retirement. But if most workers who aren’t that far away from retirement have just $100,000 saved, they’re not going to achieve that $1 million goal by the time they reach 65 or even 75 years of age—even with aggressive contributions and investments. Which means they’ll need to continue working well into retirement to avoid running out of money. If you want to downshift and give yourself a traditional retirement, rather than working until you die, you’ll need to take some steps right now. Here’s how to start retirement planning, or get back on track. 01 of 06 Start Saving Early Whether you’re starting a job fresh out of college or you’ve been in the workforce a few years, see what retirement plans your employer offers. Look for options like a: 401(k) (traditional or Roth) 403(b) 457(b) Pension Sign up for your retirement plan as soon as you’re able to. The sooner you start taking advantage of this benefit, the more you’ll start to save. For instance, if you save $50 a month (at the beginning of each month) and expect a 6% annual return, you’ll have $3,489 after five years, $14,614 after 15 years, and $23,218 after 20 years. If you save $500 a month, you’ll have $232,176 after 20 years. Note If you start saving when you’re 25 vs. starting to save at 35, your account will enjoy more compound growth from getting a head start. 02 of 06 Find the Right Retirement Account Your job might offer one or a few different retirement accounts, or might not offer one at all. If your employer doesn’t offer a work-sponsored retirement account, open an individual retirement account (IRA) These are a good option, whether your job offers a retirement plan or not, but are the best solution if you don’t have any other vehicle for retirement savings. The main difference between a Roth and a traditional retirement plan is when you get taxed (now versus later). The main difference between an IRA and a 401(k) is how much you can contribute to your plan and if the account is sponsored by your employer. For instance, IRA contributions are capped at $6,000 per year in 2020 and 2021 (or $7,000, if you’re over 50 years of age). You can have multiple IRAs, but you can only contribute the maximum amount across all of your accounts. Note If you have a 401(k), your annual max contribution for 2021 is capped at $19,500; the limit increases to $20,500 in 2022. You can contribute or $26,000 if you’re over age 51; this increases to $27,000 in 2022. 03 of 06 Know Your Retirement Goal Your expenses during retirement might not be the same as they are when you’re working. But that doesn’t mean you won’t have any expenses. You’ll probably need somewhere between 70% to 90% of your current income to cover yourself in retirement. That could change depending on many factors. For instance, you could reduce your home payments if downgrade from a large house to a one-bedroom condo. If your household has multiple cars, you could sell one and ditch the car payment and extra car insurance costs. It’s a good idea to plan now for what you need later. If you’d like to maintain your current living standards, try to make sure you’re contributing enough to cover those costs later in life. If you think you won’t have as many expenses in retirement, you’ll still need to save, but you can adjust your goals accordingly. 04 of 06 Don’t Forget About Social Security Social Security is a monthly payout that essentially gives you a paycheck based on your pre-retirement earnings. The average Social Security benefit is $1,503 per month. If this is enough for you to live off of, you may consider not saving as much for retirement. However, that’s the current payout. It could be much lower by the time you enter retirement. Note Social Security is only one portion of your retirement income. It’s important not to rely solely on this income source during retirement. Instead, save as if you don’t expect it. That way it’s an added bonus if you do get a Social Security payout later. 05 of 06 Check in on Your Savings Every Year While retirement plans are pretty low-maintenance, they still need your attention. Check in on them at least once a year. Are you maxing out your contributions? Does your employer match your contributions as well? Some retirement plans offer the chance to automatically increase your contributions by 1% every year. If yours doesn’t or you don’t want it to, still review your investments regularly regardless. Make sure you’re still on track to retire at your preferred retirement age and with enough money to last you through retirement, which, for some people, will be several decades. Rebalance your retirement portfolio whenever necessary. Try to be more aggressive with your account when you’re younger compared with when you’re closer to retirement age. That means having riskier investments in your 20s, 30s, and even 40s. That way, if the stock market plunges, you’ll have longer to recover from the drop. If you invest aggressively closer to retirement age, you may not recoup the losses fast enough. That could mean pushing retirement back until you're older and finally have enough money to comfortably stop working. 06 of 06 Make Your Retirement a Priority With so many aspects of your life demanding your money, it’s easy to push retirement further down the list. After all, if you’re not close to retirement in terms of age, it’s probably not top of mind. But retirement planning needs to be on your must-do list. Even little savings can go a long way. Continue to pay down your student loans or other debt whenever you can, but find a way to make contributions to your retirement account before it’s too late. Avoid taking out loans against your 401(k), too, unless it’s absolutely necessary. To avoid forgetting about your retirement savings, consider setting up recurring auto-contributions. This might come directly from your paycheck if you have a work-sponsored retirement account. If you have an IRA, you can set up auto-pay to add funds from your bank account to your retirement account every month. If you don’t want to commit to auto-contributions, consider adding a monthly calendar reminder to do this instead. Key Takeaways Start saving as soon as you have access to a retirement account, whether through work or your own IRA.Have a goal in mind to ensure you’re saving enough to pay for the lifestyle you want to live in retirement.Social Security may also be available, but it’s important not to rely solely on that money for your retirement.Check on your retirement account at least every year, and make adjustments where needed to help you stay on track. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources 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. Ameritrade. "2019 Retirement Pulse Survey." Internal Revenue Service. "Income Ranges for Determining IRA Eligibility Change for 2021." Internal Revenue Service. "Retirement Topics - IRA Contribution Limits." Internal Revenue Service. "401(k) Contribution Limit Increases to $19,500 for 2020; Catch-up Limit Rises to $6,500." Internal Revenue Service. "2022 Limitations Adjusted as Provided in Section 415(d), etc.," Page 1. Social Security Administration. "Fact Sheet."