Older couple sits at a table with coffee and makes a budget.

How To Save For Retirement

Ashley Kilroy10-minute read
March 23, 2022

Did you know that 22% of Americans have less than $5,000 saved for retirement while 15% have no savings at all? No wonder so many Americans are financially stressed.

We know we need to save for our future, but it seems as though our other responsibilities get in the way. If you’re like many other Americans who struggle to save for their golden years, here’s some guidance on how to save for retirement no matter what age you are.  

How Much Money Do You Need To Retire?

Before we dive into a savings plan, you’re probably wondering exactly how much should you save for retirement. This is a great question. Unfortunately, there’s no “one size fits all” solution. How much you save for retirement will depend on many factors. These variables include your current spending and saving habits, life expectancy and lifestyle preferences for the future. While you may not be able to predict an exact number, here are a few guidelines to start with:

Estimate Your Future Income Needs And Expenses

This process may take a little time and thought, but it’s essential when determining how much you’ll need in retirement. Start by jotting down your current monthly expenses on a spreadsheet and then decide if these expenses will remain consistent or fluctuate during your golden years. You may also want to include other expenses. Consider some of the leisure activities you enjoy, such as traveling or playing golf. Since you’ll no longer have to clock in at 9 a.m. and out at 5 p.m., brainstorm how you’ll fill your time. Once you’ve come up with an idea of what you think you’ll enjoy doing, calculate the expenses of each hobby. This will allow you to come up with a rough outline of the leisure expenses you can expect. Including this amount in your projected monthly retirement expenses will help you determine how much you’ll need to support your ideal lifestyle. Next, multiply that number by 12 to get your anticipated annual income. Compare this number to how much you’re currently making and then decide the income level you’ll need to replace in retirement.

Take Into Account This Rule Of Thumb Of Saving For Retirement

Many Americans won’t do the exercise mentioned above. In fact, according to the Employee Benefit Research Institute, only 42% of savers actually calculate how much they will need in retirement. If you’re among the savers who don’t plan to estimate their retirement expenses, you can try to use a common retirement savings rule of thumb. Experts recommend reducing your expenditures to 80% of your current income. This will allow you to put 20% of your income toward your retirement savings. When you’re of retirement age, your goal will then be to continue to live at your established 80% without putting the 20% into savings. This method of savings will allow you to make a seamless transition into retirement. You can use the 80/20 ratio as a starting point. From there, tailor your actual retirement number as needed. Adjust your savings to the right amount that will allow you to have your ideal income to support your retirement lifestyle.

Try Using A Retirement Calculator

Calculating your financial needs in retirement can be consuming and cumbersome. Using a retirement calculator like the one below can help you gain a better understanding of how much you’ll actually need. If you have your retirement savings at a financial institution, they may have tools and resources you can use to determine the number you’ll need.

Reassess Regularly

Throughout your life, your goals and circumstances may change. That’s why it’s important to consistently reevaluate your calculations and adjust accordingly. It’s better to make adjustments along the way than wait until the last minute. If you feel overwhelmed, you may want to evaluate your financial goals and reprioritize.

How Much Should You Be Saving Each Month?

Now that you have an idea of how much you’ll need to support your lifestyle in retirement, you will need to determine how much you should save. According to many experts, it’s wise to contribute at least 20% of your income to retirement savings. This is considered the 50/30/20 rule, which is popular in the personal finance industry.

In order to follow the 50/30/20 rule, you’ll reserve 50% of your income for necessities (such as food and housing), 30% of your income for discretionary spending (such as entertainment and hobbies) and 20% of your income for your retirement savings. For example, if you make $50,000 a year, you’ll need to set aside $10,000 for your savings each year.

When Should You Start Saving For Retirement?

You should start saving for retirement as soon as possible. The earlier you begin, the more time you’ll have to reach retirement financial security. Ideally you’ll begin saving in your 20s when you begin receiving your first real paycheck.

Each year your money will continue to grow and receive compound interest. If you begin saving at age 28 and contribute $3,000 a year toward retirement, you’ll have $481,012.21 in 37 years (assuming 7% interest). In comparison, if you wait until age 45 to start saving (using the same contribution amounts) you’ll end up with $122,986.48 in 20 years.

This example illustrates the importance of early and consistent saving for retirement. If you haven’t started saving yet, it’s better to start now than to never start at all. Saving for retirement at any age will ease some of your future financial responsibilities.

How To Save More For Retirement

If you feel as though you’re behind on your retirement savings, there are plenty of ways to catch up. Here are a few suggestions for boosting your retirement savings no matter what age you are:

  •  Minimize your expenses. Take the time to review your spending habits and determine areas you may be able to cut back or eliminate. For example, you may discover you have several subscriptions you’re not using. You can cancel them and put the extra money toward your retirement funds.
  • Start a side hustle. Creating an extra revenue stream will help boost your income and give you more money to contribute to your future. From freelance writing to selling your art on Etsy, there are numerous ways to earn extra cash. Consider your hobbies, talents and skills to decide the best way to increase your cash flow.
  • Ask for a raise. While it may seem intimidating, asking for a raise is a great way to help boost your retirement fund. If you haven’t received a pay increase in the last year, take time to review your accomplishments and share them with your boss. Sharing the value you add to the company may increase your chance for a raise. After all, it never hurts to ask.
  • Automate your savings. As seen in the example above, consistent savings is key to a prosperous retirement. Setting up automatic contributions will ensure you never miss a contribution.

Taking the time to review spending and savings habits can help you identify areas you may be spending too much or saving too little. Get creative and determine how you can boost your retirement savings.

Retirement Accounts

To help savers reach their retirement goals, the IRS has created a few tax-advantaged retirement accounts such as the 401(k). Here is a brief overview of the benefits of these accounts and how you can utilize them to maximize your savings.

401(k) Or 403(b) Accounts Offered By Your Employer

A company-sponsored retirement account is one of the easiest places to start investing for your retirement. When you contribute to a company-sponsored plan, you’ll do so with pretax dollars. If you take home a $2,000 paycheck and contribute $200 to your 401(k), $200 will go into your account and the remaining $1,800 is taxable.

In 2019, participants are able to contribute up to $19,000 annually. Once an employee reaches 59 ½ years old, they can take distributions from their accounts depending on the rules of their plan. They must pay income taxes on all withdrawals.

Many company-sponsored plans also have match programs. This means that the company will match contribution amounts up until a certain percentage. For instance, if an employee contributes 3% to their 401(k), their company may match their contribution up to 2%. This helps employees boost their retirement savings.

Traditional And Roth IRAs

Similar to a 401(k), a traditional IRA or 401(k) is a retirement savings account that allows account holders to save for retirement with pretax dollars. Once an account holder reaches retirement, withdrawal taxes are at the highest ordinary-income rate. If the account holder chooses to take distributions before they reach the age of 59 ½, they will also have to pay a 10% penalty on the money withdrawn.

With a Roth IRA, your contributions are not tax-deductible. This means that you can contribute to your Roth account with after-tax dollars. Unlike traditional IRAs, distributions are tax-free as long as you are under 59 ½ years old or are only withdrawing your contributions.


SEP, or simplified employee pension, is for individuals who are self-employed or small business owners. In 2019 employers can contribute up to 25% or $56,000 of their income (whichever is less).

Simple IRA

Savings Incentive Match Plans for Employees, or a Simple IRA, allows small employers to establish IRA accounts with less paperwork. Employers must either match or make unmatched contributions to their employees’ accounts. Employees may contribute up to $13,000 per year (extra $3,000 for employees over 50 years old).

Solo 401(k)

If you’re a sole proprietor, you’re able to establish an individual or solo 401(k) plan. With this plan, you can make contributions as the employee and employer up to $56,000 and up to $62,000 for account holders over 50 years old.

Retirement Savings By Age

There are specific milestones you can measure your retirement savings by. Using these markers, you’ll provide yourself with a set of checks and balances to determine your progress on your goals. Keep them available to remind yourself what you’re working toward.

  • In your 20s and 30s: In the early years of your career, it’s important to focus on adopting solid financial habits that can set you up for future financial success. These habits may include sticking to a budget or automating your savings. Some financial experts recommend having at least one full year of your total salary saved for retirement.
  • In your 40s: In your 40s you want to focus on your earning power and make as much as possible. If you have children, you may also think about contributing to their higher education expenses by adding to a 529 plan. Experts recommend you should have at least three times your salary saved for retirement.
  • In your 50s: In your 50s you’ll want to bump up your preparation for retirement. Even though it may be decades away, starting the preparation process now will help you better manage your finances. During your 50s you should have between five and six times your salary in savings.
  • In your 60s: During your 60s, you’ll want to identify ways to minimize your expenses while maximizing your investments. Your 60s may dictate your financial health in retirement, so it’s imperative to maximize your money while you can. It’s recommended to have eight to nine times your salary in savings.

What To Do If You Haven’t Saved Enough

If you find yourself in the scary position of having less savings than you need, don’t panic. There are a few methods that will assist you in catching up on your retirement savings. You have to be willing to put in the work, though. Some of these concepts are going to seem a bit drastic.

Remember that nothing comes easy, and if you want to reap the benefits of an ideal retirement, you will have to sacrifice to get there.

Max Out Your Match

If your company employer offers a match program, max out your matching contribution. Your company is offering you free money toward retirement. You should capitalize on that opportunity. Although it may take a cut of your take-home pay, keep in mind that you’re earning money you wouldn’t otherwise be earning toward your retirement.

Increase Your Savings By 1% Every Year

Studies show that the average American has a 1% salary increase every year. This doesn’t mean you should spend your extra income. Adjust your mindset to that of someone whose salary doesn’t increase. Take the additional money you earn and put it toward your retirement savings. The 1% increase is so small you’ll barely notice the difference.

However, your retirement savings account will notice a difference. Over the course of 10 years, the money you put away will increase by 10%. This is a huge increase that you’ll accomplish by taking small, even steps on a yearly basis.

Take Advantage Of Catch-Up Contributions

Once you’ve turned 50 you’ll be able to contribute more money toward your retirement savings. Take advantage of this! Instead of maintaining the same contribution you’ve made to your 401(k), increase your allocation. The catch-up program is for people in your situation. Don’t think you’re alone if you’re behind –know that you’re like many others who need a chance to catch up.

Review Your Investment Mix

Like checking to see if refinancing your home at a lower rate is possible, review your investment mix on a regular basis. Often we become stagnant in our efforts toward these items because routine is easy and uncomplicated. Don’t allow yourself to become complacent. Review your investment mix and see if what you have currently is the best financial situation for you.

More importantly, see if there are other options that could be doing more for your savings. If you’re not sure that you’re maximizing your investments, enlist the assistance of a seasoned professional. They have the training to prepare them to help people who are in need of better options. Let them help you find one!

The Takeaway

You may feel like retirement is a distant milestone that you consider on occasion. It’s important not to allow yourself to dismiss it as something that’s too far removed from your current state. Planning and following through on your financial goals are critical to establishing a solid savings for your golden years. If you feel overwhelmed by your savings options, seek the help of seasoned professionals.

These professionals are knowledgeable individuals who will be able to provide you the appropriate guidance for your unique financial situation. Don’t allow fear of the process prevent you from working toward the retirement lifestyle you imagine. It’s never too early (or too late) to prepare for retirement. Remember, everyone’s financial situation is different and it’s best to speak with a licensed financial expert or advisor before making any major financial decisions.

Ashley Kilroy

Ashley Kilroy is an experienced financial writer. In addition to being a contributing writer at Rocket Homes, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.