Start building your retirement savings by setting a target age, choosing account types, capturing employer matches, selecting investments, and planning for catch-up contributions as you age.
Choose your target retirement age (traditional: 65-67, early: 55-60)
Full Social Security benefits start at 66-67 depending on birth year. Retiring at 62 reduces Social Security by up to 30%. Each year earlier than 67 requires roughly 3% more in savings.
Estimate your annual retirement spending (typically 70%-80% of pre-retirement income)
If you earn $80,000 before retirement, plan for $56,000-$64,000 per year in retirement. Some costs drop (commuting, work clothes) but healthcare typically increases by $5,000-$10,000 per year.
Calculate your total savings target using the 25x rule
Multiply your desired annual retirement income by 25. For $60,000 per year, you need $1.5 million. This is based on the 4% safe withdrawal rate, meaning you'd withdraw 4% of your portfolio each year.
Determine your required monthly savings rate to hit your target
Starting at age 30 with $0, reaching $1.5 million by 67 requires saving roughly $1,000 per month assuming 7% average annual returns. Starting at 40 requires about $2,200 per month for the same goal.
Aim for a 15% Savings Rate
Calculate 15% of your gross income as your savings target
On a $70,000 salary, 15% is $10,500 per year or $875 per month. This includes employer match contributions. If your employer matches 3%, you only need to contribute 12% yourself.
If 15% isn't possible yet, start with whatever you can and increase 1% per year
Starting at 6% and increasing by 1% annually reaches 15% in 9 years. Most people don't notice a 1% increase, especially when timed with annual raises. Even $100 per month at age 25 grows to $264,000 by 65 at 7% returns.
Always contribute at least enough to get the full employer match
An employer match of 50% on the first 6% of salary is free money. On a $70,000 salary, contributing 6% ($4,200) gets you $2,100 in match. Skipping the match is leaving $2,100 per year on the table.
Choose Your Account Types
Enroll in your employer's 401(k) or 403(b) plan
The 2024 contribution limit is $23,000 ($30,500 if 50 or older). Contributions reduce your taxable income dollar for dollar. A $10,000 contribution in the 22% tax bracket saves $2,200 in taxes immediately.
Open a Roth IRA or Traditional IRA as a supplement
The 2024 IRA limit is $7,000 ($8,000 if 50+). Roth IRA income limits are $161,000 (single) and $240,000 (married). If your income exceeds these, consider a backdoor Roth strategy.
Decide between Roth (pay tax now) and Traditional (pay tax later) contributions
If you're in a lower tax bracket now than you expect in retirement, Roth wins. A 25-year-old earning $50,000 in the 12% bracket benefits from Roth. A 50-year-old at peak earnings in the 32% bracket may prefer Traditional.
If self-employed, research SEP-IRA or Solo 401(k) options
A SEP-IRA allows contributions up to 25% of net self-employment income, maxing at $69,000 for 2024. A Solo 401(k) allows both employee ($23,000) and employer contributions for potentially higher totals.
Capture Your Full Employer Match
Find out your employer's exact match formula
Common formulas: 100% match on first 3%, 50% match on first 6%, or dollar-for-dollar up to 4%. Read your plan's Summary Plan Description or ask HR for the exact formula.
Set your contribution percentage to capture the maximum match
If your employer matches 50% on the first 6%, you must contribute at least 6% to get the full 3% match. Contributing only 4% leaves 1% of free money unclaimed.
Check the vesting schedule for employer match contributions
Many employers vest matching funds over 3-6 years. A 4-year graded schedule might vest 25% per year—if you leave after 2 years, you keep only 50% of the match. Know this before making job-change decisions.
Select Your Investment Allocation
Choose a target-date fund matching your expected retirement year if you want simplicity
A Target 2055 fund automatically shifts from 90% stocks to more bonds as you approach retirement. These are single-fund solutions with expense ratios typically between 0.10% and 0.15%.
For a DIY approach, allocate based on your age (110 minus age = stock percentage)
At age 30, invest 80% in stocks and 20% in bonds. At 50, shift to 60% stocks and 40% bonds. This rule of thumb becomes more conservative as you approach retirement when you need stability.
Prioritize low-cost index funds with expense ratios under 0.20%
A 1% expense ratio versus 0.05% on a $500,000 portfolio costs $4,750 more per year. Over 30 years, that fee difference can reduce your final balance by $300,000-$500,000.
Set up automatic rebalancing annually or semi-annually
After a stock market rally, your 80/20 split might drift to 90/10. Rebalancing sells high and buys low automatically. Most 401(k) plans offer auto-rebalancing—enable it in your plan settings.
Plan for Catch-Up Contributions and Annual Review
At age 50+, take advantage of catch-up contribution limits
Workers 50 and older can contribute an extra $7,500 to a 401(k) (total $30,500) and an extra $1,000 to an IRA (total $8,000) for 2024. This adds $8,500 per year in tax-advantaged savings.
Review your portfolio allocation and savings rate every January
Check whether your actual allocation matches your target. Review whether your savings rate increased with your latest raise. A 3% raise is an opportunity to bump savings by 1% painlessly.
Update your retirement target estimate as your salary and spending change
Recalculate your 25x target annually. If your expected retirement spending increased from $60,000 to $70,000, your target jumps from $1.5 million to $1.75 million—adjust your savings rate accordingly.
Review and update beneficiary designations after major life events
Marriage, divorce, births, and deaths all require beneficiary updates. Retirement account beneficiary designations override your will. Outdated beneficiaries are one of the most common estate planning mistakes.
Frequently Asked Questions
How much should I save for retirement each month?
Target 15% of gross income including employer match. On $60,000 salary with 4% employer match ($200/month), your contribution should be at least $550/month (11%). Starting late (after 35), aim for 20-25%. Fidelity benchmarks: 1x salary by 30, 3x by 40, 6x by 50, 10x by 67. Consult a financial advisor for a personalized target.
What age should I start saving for retirement?
As early as possible. Starting at 25 with $300/month at 8% returns yields about $1 million by 65. The same amount starting at 35 yields $440,000. Each decade of delay roughly doubles the monthly savings needed. Even $50/month in your 20s has outsized impact through compound growth. Time is more valuable than amount in early years.
What is an employer match and how does it work?
Free money: your company contributes based on your own contribution. Common: 50% match on first 6% of salary ($60,000 salary contributing 6% = $3,600, employer adds $1,800). Not contributing enough for the full match leaves compensation on the table. Check vesting schedules (2-6 years to own employer contributions).
Should I save for retirement or pay off student loans first?
Do both. At minimum, contribute enough for your full employer 401(k) match (the guaranteed 50-100% return beats any loan rate). Split remaining dollars based on interest rates: loans below 5%, favor retirement; above 7%, favor loan payoff. A financial advisor can model the split for your specific situation.