Saving for retirement is a critical part of a successful financial future. When it comes to retirement savings, getting started as soon as possible is important. With time on your side, you can take advantage of the compounding effect and build your savings more quickly. 

But no matter where you are in the process of building a solid financial foundation, saving for retirement is a vital step to securing a financially stable future. 


Why should you be saving for retirement? Saving for Retirement

If you are like most people, then you probably don’t want to work forever. Even if you see yourself enjoying your chosen career path until the traditional retirement age of 65, you might not be physically or mentally able to work beyond that. If you can’t even imagine working until the traditional retirement age, then saving for your financial independence and subsequent early retirement is even more critical. 

Beyond the simple answer that you likely don’t want to work forever, you may not be able to work forever. Many people experience a life change of some kind that pushes them out of the workforce before they expected to leave. 

Additionally, funding a full retirement is a big expense.  Funding your retirement lifestyle is not an easy money goal. In most cases, you’ll need a substantial nest egg to enjoy retirement with the amenities you crave. With that, it is important to start saving for your retirement as soon as possible. 


What percentage of your income should you save for retirement?

The amount that you set aside for retirement will vary widely based on your goals. You can start by thinking through your retirement goals. Consider when you want to retire and what you plan to do during those golden years. 

For example, retiring early for a lifestyle of travel will require more carefully saved capital than retiring at 65 to volunteer in your local community. You can start to get a better idea of what funds you’ll need for retirement when you think through the details of your plans.

Let’s walk through an example. Let’s say you are 35 years old with an annual salary of $100,000. You plan to retire at age 65 and spend $3,000 per month in retirement. You are starting with $0 in savings and expect a rate of return on your savings of 6%. With that, you’d need 20% of your income which comes out to a saving goal of around $1,700 per month. 

If you want to calculate this number for your own situation, I recommend checking out a retirement calculator such as this one offered by Vanguard. You can play around with the numbers to get a better understanding of what you’ll need to save for the retirement you desire. 


How much should you have saved for retirement by age

It is important to note that it is never too late to get started. You can and should start saving for retirement at all ages.

If you plan to work until the traditional retirement age of 65 after working for over 30 years, then you’ll need to stay on track. You’ll need to save 1x your income by 30, 3x your income by 40, and 5x your income by 50. With this pace, you should be able to retire at age 65. 

However, the numbers will look completely different if you plan to retire early. If you want to leave the workforce well before age 65, then you’ll need to save at a dramatically faster rate. The exact numbers of your early retirement plan will vary based on your unique situation. But plan on saving at least 50% of your income to have a shot at early retirement. 


How to start saving for retirement

It is great to understand the importance of saving for retirement. But you’ll need to put this into action as soon as possible. Let’s cover the top action steps you should take to start saving for retirement. 

Consider your retirement goals

First, you need to consider your retirement goals. The lifestyle you choose to lead in retirement will have a big impact on your savings goals. Additionally, if you have plans to retire early then you’ll need to factor that in. 

Take some time to think about your retirement lifestyle goals before thinking too much about the savings goals. Think about what you need to enjoy your retirement fully before moving on. 

Determine what you’ll need to save

Once you have an idea of what your lifestyle in retirement will cost, then consider how much you’ll need to save. For this step, I recommend using a calculator to help you figure out these details. It can be helpful to play around with the numbers of different scenarios until they work for your situation. 

Maximize your savings in tax-advantaged vehicles

As you start saving for retirement, it is important to take advantage of tax-advantaged vehicles. This includes accounts such as a 401(k), 403(b), Roth IRAs, Traditional IRAs, and HSAs. Each of these accounts is designed to help you manage your tax burden. Research your options and move forward with a combination of these accounts. 

Expand to taxable accounts

Beyond tax-advantaged accounts, you can also choose to invest in taxable accounts. Although you should prioritize your tax-advantaged options, saving more for retirement is never a bad idea. When saving in a taxable account, make sure to find an option that minimizes your investment fees. You don’t want the fees of your account to hold back your investments. 

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Try real estate investing

Beyond the stocks and bonds, you can also choose to invest in real estate. A real estate portfolio is a viable option for anyone that is willing to learn about the field. You can create an income-producing portfolio to fund your retirement. If you are interested in trying your hand at real estate, then check out our full guide to real estate investing for beginners

Stay motivated

As you save for retirement, take a minute to understand that this is a long-term plan. You should not expect immediate results as you start to stash cash. In fact, it may take several years before you see substantial progress. That’s okay! Just stick to your savings goal and keep moving towards the retirement of your dreams. 


How to start saving for retirement as a couple

If you saving for retirement as a couple, it is critical to bring your spouse on board. Since the finances of the household affect both of you, you can’t tackle retirement savings alone. 

Take some time to get on the same page about your retirement goals. Talk through any differences of opinion and work to find a retirement plan that will work for both of you. Once you have a mutual goal, making the decision to save as a couple gets easier. 

Saving for Retirement Never Too Late

What is the best way to save for retirement?

Whether you want to retire early or at 65, you need to build savings to fund your post-workforce lifestyle. The best way to get started is to take action today! Don’t delay your retirement savings plans any longer.